The volume of alternative assets under management in the U.S. wealth management channels could rise to $3.03 trillion by 2029, according to a new report from FUSE Research Network. The increase would represent a compound annual growth rate of 17% from today’s AUM of $1.37 trillion.
Alternative investments have been steadily rising among wealth management firms for several years. For example, a joint survey conducted last year by alternative investment platform CAIS and financial planning firm Mercer found that 92% of participating advisors already incorporate alternatives into their client’s portfolios. Most (91%) plan to increase those allocations in the next two years. In addition, 76% of surveyed advisors have been allocating at least 5% of their clients’ portfolios to alternative assets.
Meanwhile, investment banking firm Robert A. Stanger & Co. reported that fundraising for alternative investments in the U.S. retail channel, including for interval funds, BDCs and non-traded REITs, reached $122 billion last year. The figure represented a significant increase over 2023’s total of $76.8 billion and 2022’s high watermark of $105.0 billion. Similarly, XA Investments, which focuses exclusively on interval funds and tender offer funds, reported there are now 257 funds in those two categories with a combined $172 billion in net assets and $208 billion in total managed assets.
Private equity and venture capital investments will likely remain the most popular alternative assets among wealth management players, with a projected increase to $1.4 trillion in AUM over the next four years from $54 billion today, according to FUSE. Investment in real estate, infrastructure and natural resources could also double, from $22 billion to $48 billion in 2029.
According to FUSE researchers, several factors account for these projections. The first is that investment gains have allowed more wealth management clients to hit the $1 million in net worth required to qualify for accredited investor status. That status allows investors to participate in more funds focused on alternative assets.
In addition, large, traditional asset managers, including Blackstone, BlackRock, Fidelity, Franklin Templeton and Nuveen, have been launching more funds and platforms to distribute alternatives in the private wealth channel and build relationships with financial advisors. Many of these firms offer advisors educational resources and commentary on alternative strategies. They have also been building specialized teams that focus on popularizing alternatives in the wealth channel.
According to Loren Fox, director of research at FUSE Research Network, the market for alternative investments in general is expected to grow substantially over the next several years, with some firms projecting growth of about 15%. With wealth managers now increasing their allocations to alternatives, the industry is getting a bigger share of an already growing pie.
“Advisors are increasingly interested in alternatives, and there are three main reasons for that,” said Fox. “There is the diversification and the lack of correlation with other assets. Secondarily, there is the potential for upside growth and capital gains. And the third is risk mitigation, some type of protection on the downside. You probably have seen this talked about by other firms—it’s becoming more and more common for advisors to think that somewhere around 5% to 10% of a client’s portfolio could be in a mix of alternative assets to provide that diversification and potential extra boost to upside growth.”
