As advisors’ use of alternatives rises, a few themes are emerging.
Advisors are gravitating to model portfolios and evergreen funds when allocating to alternative assets and are increasingly looking for a single-platform solution to manage these investments, according to the third annual survey conducted by alts tech platform CAIS and Mercer, a wealth management and financial planning business.
In all, 77% of surveyed advisors indicated a preference for model portfolios. That percentage was fairly consistent across client sizes ranging from under $500,000 in investable assets to those over $100 million. In a separate question, advisors cited portfolio construction tools (54%) and model portfolios (47%) as the top resources for simplifying the alternative investment process.
In addition, 66% of surveyed advisors said they were inclined to use evergreen funds—such as business development companies, interval funds, non-traded REITs or tender offer funds—over traditional private drawdown funds.
“Responses from the advisor community illustrate the evolving advisor sentiment around alternatives from optional components to pillars of a portfolio,” CAIS Chief Investment Officer Neil Blundell said in a statement. “We’re seeing a seismic shift in demand as advisors increasingly recognize the diversification and growth potential alternative investments provide. With trillions of dollars potentially moving from traditional assets into alternatives over the next decade, tools like model portfolios can assist advisors looking to refine and elevate their approach to alternative investing.”
The survey found that 92% of surveyed advisors now incorporate alternative investments in client portfolios, with 91% planning to increase allocations over the next two years. In addition, five in 10 advisors allocate over 10% of client portfolios to alternatives, while more than three-quarters (76%) allocate at least 5%.
On the administrative side, advisors are showing a desire for a single solution for managing alternative investments’ pre-trade, trade and post-trade. In all, two-thirds (66%) of advisors cited platform integrations as the most valuable technology feature, followed by analysis tools (60%).
"The findings underscore the importance of equipping independent advisors with the same high-quality resources and due diligence capabilities that institutions have benefitted from,” Gregg Sommer, partner and U.S. financial intermediaries leader at Mercer, said in a statement. “By providing due diligence and monitoring for funds on the CAIS platform, Mercer empowers advisors with research and risk management insights that extend far beyond the investment itself, helping them build differentiated portfolios with confidence and conviction.”
In terms of interest in asset classes, private debt (89%), private equity (86%) and real estate (85%) topped the list for advisors having at least marginal exposure. Those topped the list for advisors allocating more than 5% of a client portfolio (38%, 34% and 26%, respectively).
Less common assets with at least some exposure included hedge funds (54%), infrastructure (51%), and structured notes (49%). Natural resources (27%) and digital assets (19%) were at the bottom of the list.
Looking ahead, in the next 12 months, private equity and infrastructure topped the list for assets advisors expect to increase allocations (75% each), followed by private debt (60%), real estate (49%), structured notes (38%), hedge funds (30%), natural resources (20%) and digital assets (19%).
The survey was conducted in September and October, including at the CAIS Alternative Investment Summit in Beverly Hills, Calif. Respondents included independent RIAs, broker/dealer affiliates, family offices and other advisor professionals. The data is based on responses from 550 financial advisor respondents.
