Beyond Bulls & Bears


Alternative Allocations: The growth and evolution of alternative investments

Franklin Templeton Institute’s Tony Davidow sits down with Daniil Shapiro of Cerulli Associates to discuss the growing interest in alternative investments among advisors, the increased availability of private market funds, and the need for better alternatives education.


In the latest episode of our Alternative Allocations podcast series, I had the opportunity to sit down with Daniil Shapiro of Cerulli Associates. Daniil and I discussed Cerulli’s research on alternative investments, focusing on advisor adoption and product evolution, and how the industry is embracing the sector. We focused on the growth and adoption of private market funds. Today’s environment is unique in that asset managers are delivering products that advisors and investors are clamoring for, in structures that align everyone’s interests.

Daniil and I discussed some of the challenges for advisors, including alternatives education, illiquidity, and operational difficulties. We discussed how we can help advisors move from the current industry average of roughly a 6% allocation to alternatives, to a more impactful 15%-20% allocation, depending on each client’s goals, objectives, and time horizon. Daniil stated, “. . . it comes down to the enhanced liquidity products that are being increasingly made available to them. It’s using platforms like iCapital and CAIS in order to streamline the access to alternative investment exposures.”

We discussed the importance of developing alternative education and thought leadership to help advisors and investors. Daniil also stressed the importance of having dedicated resources to help educate, sell and support alternative investment offerings. In several industry studies, including Cerulli’s research, advisors recognize the value of private markets, and have indicated a desire to increase their exposure.

Daniil shared the types of education and thought leadership that are most helpful for advisors. Advisors are seeking asset-class education, guidance on portfolio construction, help with communicating the merits of alternatives to clients, and education regarding the tradeoffs of the various structures.

Given Cerulli’s unique vantage point, I asked Daniil where he thought we would be as an industry in the next 10 years. He stated that “advisors are going to be allocating more to alternative investments. They’re going to be allocating more to these high-quality alternative investment products.”  He said he anticipated trillions of dollars would be available across the US wealth channel.

Daniil mentioned there would be winners and losers, and the assets would not be distributed evenly. He predicts that semi-liquid structures like interval and tender-offer funds will benefit from advisor adoption due to their flexible features and ease of access.

While there has been a lot of interest in the growth and adoption of alternatives in the wealth channel, the percentage allocated to alternatives has stubbornly remained about 6% over the last decade, despite advisors recognizing the need and advantages of increasing their allocations.

We believe this growth and adoption will be driven by a market environment that demands a more robust toolbox, product innovation that makes private markets more accessible to a broader group of investors, and access to institutional-quality managers.

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All investments involve risks, including possible loss of principal.

Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. An investment strategy focused primarily on privately held companies presents certain challenges and involves incremental risks as opposed to investments in public companies, such as dealing with the lack of available information about these companies as well as their general lack of liquidity. Diversification does not guarantee a profit or protect against a loss.

An investment in private securities (such as private equity or private credit) or vehicles which invest in them, should be viewed as illiquid and may require a long-term commitment with no certainty of return. The value of and return on such investments will vary due to, among other things, changes in market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets and the financial condition of the issuers of the investments. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor’s ability to dispose of them at a favorable time or price. Past performance does not guarantee future results.


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