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3 min read

Why Financial Advisers are Bullish on Alternative Investments

Why Financial Advisers are Bullish on Alternative Investments

Historic investment strategies are changing, with investments in non-traditional assets, illiquid assets and other alternatives on the rise.
The traditional “60/40” mix of public equities and fixed income assets is predicted to generate just half its historic rate of return, prompting investors to move into alternatives to maintain solid returns in volatile market conditions. A 2017 asset and wealth management report by PricewaterhouseCoopers notes that alternative asset classes such as real estate and real assets, private debt and private equity will double by 2025 as investors continue to diversify and hedge against volatility.

Asset managers are moving their clients into a wider range of alternative investments, including peer-to-peer lending, startups, and small and medium enterprises. Prequin, a London-based alternative asset and data intelligence company, reports that the private debt industry saw a four-fold increase of assets under management since 2006 to more than $595 billion in 2016. By 2025, alternatives could constitute as much as 15 percent of all assets under management.

Financial advisors are bullish on alternatives, and for good reason — as the overall investor pool continues to grow and evolve, asset managers are razor-focused on providing new strategies and opportunities to improve their client’s portfolios.

The Growth of Private Equity Funds
According to a June 2018 report by New York-based iCapital Network, more than three-quarters of experienced investment advisers allocate private equity funds as a common alternative investment, with 15 percent allocating to private direct deals. Diversification and the potential for attractive returns are the most compelling reasons to invest in private equity funds, the iCapital report notes. (Private equity funds invest in companies that are not publicly listed on a stock exchange. They typically are a long-term investment play since investors can’t withdraw their funds. These types of investments are usually for qualified purchasers — high-net-worth individuals worth $5 million or more.)

Three reasons why financial advisors are bullish on private equity funds:

  1. Returns: 89%
  2. Diversification: 60%
  3. Opportunity: 20%

However, two-thirds of all advisers have less than 5 percent of their clients assets invested in PE funds. New platforms that make it easier for investors to find and invest in private equity funds and other alternatives should facilitate greater access to these types of deals.


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Nick Veronis, iCapital Network’s managing partner, says that there’s a great deal of economic growth occurring outside of public markets. Investments made in the private marketplace allow clients to diversify their portfolios and realize long-term growth opportunities, Veronis says in the iCapital Advisors and Alternative Investments report.

iCapital’s Chief Executive Officer, Lawrence Calcano, notes that diversification also allows investors to better weather market volatility, as well as fund specific goals. Alternative investments are a means for clients to better navigate the often-rocky investment landscape.

Historically, a lack of access to private equity funds, combined with a host of other factors, has limited growth in this alternative investment sector. Primary issues impacting investors’ ability to invest in private equity funds include high minimums, competing investments, illiquidity and past performance.

The Growth of Private Direct Deals

Private direct deals represent an increasingly attractive alternative due to the returns clients can realize, the iCapital report notes.

Three reason financial advisors are bullish on private direct deals:
Returns: 88%
Diversification: 32%
Opportunity: 57%
Unlike other investment opportunities, though, private direct deals don’t have as strong a pipeline for new investments — advisers often rely on their personal and professional networks, angel groups or online research to find deals. Many private direct deals also suffer from illiquidity — high-net-worth investors seek quicker returns than these deals offer.

Using Rocket Dollar for Private Direct Deals and Other Alternative Investments

Alternative investments represent a key opportunity to grow and diversify retirement portfolios. Rocket Dollar’s Self-Directed Solo 401(k) and Self-Directed IRA provide people with money locked into company-sponsored retirement accounts with a tax-sheltered investment vehicle where they can seek out direct investment deals in private companies or become limited partners in venture capital funds or private equity funds.

These types of private investments allows investors to have a more hands-on role with their retirement funds since they can choose which types of businesses or individuals in which to invest. It’s a smart use of retirement dollars, since private direct investing and private equity funds both are long-term plays.

Creating a Self-Directed retirement account through Rocket Dollar allows investors to diversify their retirement portfolios, realize new avenues for investing, capitalize on timing, and unlock the full value of investment dollars — all primary reasons why financial advisers are bullish on alternatives.


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