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In recent years, advisors and their clients have been embracing the important role alternative investments can play in those clients’ portfolios. Because they tend to have low correlation to traditional asset classes such as equities and fixed income, they may be a beneficial way to add diversification to a portfolio while potentially enhancing returns. “The current environment has provided a tailwind for increased exposure to alternative investments,” says Tim Loughrey, Head of Client Success at Canoe Intelligence.
There are four key reasons, Loughrey says. First, advisors are increasingly turning to alternatives to balance the lower expected returns of traditional asset classes like stocks and bonds. This is particularly acute with the low yields offered by fixed income and the arguably stretched valuations within the equity markets. Additionally, in recent years, robo advisors have helped commoditize investing, so advisors are actively taking steps to differentiate themselves by offering more sophisticated investment solutions. Also, clients are increasingly aware of available investment options and demand more from their advisors. Consider Newport Beach, California-based Corient Capital Partners. “The clients that we serve—families and institutional portfolios—require the ability to handle a level of complexity that’s not present in retail portfolios, including alternative,” says Joe Kolker, Corient’s director of operations. Finally, the application of easy-to-use technology to support alternative investing has helped democratize access to these investments.
No matter a firm’s size, alternatives may present advisors with operational challenges, including complex document collection workflows, difficulty managing unstructured data, and additional cost pressures. Advisors appear to be increasingly looking to automated technologies to more effectively manage these operational challenges.
Recently, WealthManagement.com and Informa Engage surveyed financial advisors on behalf of Canoe Intelligence to gain a better idea of how advisors are using alternative investments, how they manage reporting, and the challenges they face.
