Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Global alternatives managers home in on HNW investors despite four key risks
The growth of alternative investment management has been a bright feature in wholesale and institutional markets over the past decade, with large-scale investment teams clamouring for relatively de-risked, non-correlated assets to balance out the hefty equity sleeves in their portfolios.
Now it’s the upper end of the retail crowd that alternative investment managers have in their sights.
In its latest 2024 Global Alternative Fund Survey, professional services giant EY found that the majority of alternative fund managers (400 of which they surveyed) are looking for “new types of investors” to fuel growth. Retail or “mass market” investors, high-net-worth and ultra-high-net-worth investors constitute the “next big growth market”, the report states, especially in the North America, and should be a “leading priority” for alternatives managers over the next three years.
Despite the roaring success of private markets recently – with private credit joining private equity as a driving force in alternative investment provision – it hasn’t been easy for managers to raise capital. Economic conditions and increased competition have actually made the environment more difficult for some providers, which EY believes is pushing them to reach for the retail market.
“This push is particularly marked among private equity general partners,” the EY report states, “many of whom have seen their fundraising abilities constrained in recent years by higher interest rates, slower than expected recycling of capital, and subdued M&A and IPO activity.”
The trend for alternative assets – once the bastion of institutional providers – to be ‘democratised’ or made available to the mass market, is not a new one, with a plethora of managers offering fractional investment in alternative sectors. ETF providers have been providing alternative asset investment vehicles to retail investors for some time. What’s interesting, EY notes, is that this democratisation trend is not slowing down.
“Alternative fund managers are pushing on an open door,” the report states. “The democratisation of alternative asset classes is becoming an accelerating trend, fueled by growing demand from HNW and UHNW investors for the returns and diversification that alternatives promise to deliver.”
*The Inside Network’s 2025 Alternatives Symposium will take place in Healesville, VIC February 24-25.
A bridge to the masses
In order to develop relationships with retail investors and the financial advisers that guide their investment decision-making, EY reports that most alternative investment managers are either currently or in planning to flesh out their business development talent. The link to the financial advice sector is considered crucial in making that happen.
“Many are also seeking to enhance their ability to engage with and educate wealth managers, platform providers and investment advisors. Joint ventures, partnerships and mergers between alternative fund managers and wealth management providers are also becoming more frequent,” EY states.
Investment into developing this new market does not come without risk, however, and alternative fund managers are clear about the salient dangers involved. There are, according to EY, four main risks inherent in broader engagement with individual investors, including below:
- Liquidity – 48 per cent of managers are worried about managing liquidity expectations.
- Transparency – the availability of data for risk monitoring and performance reporting is managers’ second greatest worry.
- Nomenclature – firms are concerned about a lack of standard parameters and definitions for alternative investments.
- Suitability – the organisational culture and norms of alternatives management and wealth advice are very different, with significant scope for miscommunication.
One theme that underscores all these concerns, EY notes, is the need for better education so retail investors are more informed about what to expect from alternative investments.
“Ensuring that investors have a deep and nuanced understanding of the investments they’re making – including behavior, risks, and the range of potential outcomes should be the most important goal for firms seeking growth from individual investors,” EY states. “The need for education encompasses financial advisers, too.”
