Alternative Allocations: The State of the Alternative Investments Industry

In this first episode, Franklin Templeton Institute’s Tony Davidow discusses the democratization of alternative investments and related topics with CAIA’s John Bowman.

In our inaugural episode of the Alternative Allocations podcast series, I was joined by my friend John Bowman, Executive Vice President at the Chartered Alternative Investment Analyst (CAIA) Association, and we discussed the state of the alternative investments landscape. John reviewed the growth and diversity of the alternative investments marketplace, with roughly US$22 trillion in assets under management, which has been largely from institutions and family offices.1

Global Investible Market 2022

We also reviewed the growing interest from the wealth management channel, which we refer to as the democratization of alternative investments. We discussed the key factors fueling the democratization of alternatives, including:

  • The current market environment is demanding an expanded toolbox to meet investor needs.
  • Product innovation has made access to alternatives more achievable.
  • Access to institutional-quality managers is required in these specialized markets.

As the wealth management community gains increased access to private markets, we discussed the benefits of an alternative investments education, and how important it is that wealth advisors take the lead in educating investors about the merits of each strategy, their risk and return characteristics, and the structural tradeoffs.

John focused on one the biggest challenges and misconceptions for advisors and investors—liquidity. He stated, “. . . liquidity, unfortunately, is one of the most misunderstood elements of investing. This is not inherently good or inherently bad. It’s a feature that you need to understand alongside of every other feature.” For investors to capture the illiquidity premium often associated with private markets, they must commit capital for an extended period of time (7-10 years), to allow the managers to unlock the value of these private companies.

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