Alternative Allocations: Democratizing Alternative Investments in Today’s Market

In the latest episode of the Alternative Allocations podcast series, I had the opportunity to interview Matt Brown, Founder and CEO of CAIS, at the inaugural CAIS Live educational event. Matt and I discussed the democratization of alternative investments, the limitations of the traditional 60/40 portfolio and the lessons learned from institutions that have historically used alternatives in a very meaningful fashion. Institutions have historically used alternative investments based on their strong risk-adjusted returns, as an alternative source of income, as a tool for dampening portfolio volatility and a way of hedging the impact of inflation. Not surprisingly, they have represented significant allocations across the various types of institutions.

institutions allocate

While hedge funds have been available longer to the wealth management channel, private markets (private equity, private credit, real estate and infrastructure) are relatively new to this group of investors. The introduction of registered funds has made these elusive investments available to a broader group of investors, at lower minimums, and offer greater flexibility. There is still a bit of a learning curve regarding the merits of the strategies and the various product structures available to access them.

I asked Matt about the key findings in the 2023 CAIS/Mercer Advisor Survey1, and he noted that “. . . the question that we got most encouraged about was the fact that almost 90% of advisors plan to increase their allocation to alts in the coming years. So, I think the message is getting through that if you want to improve client portfolio performance, if you want to attract more sophisticated clients, if you want to merge with firms who have alts practices, alts are becoming, well, let’s just say more traditional.”

Although advisors are reportedly looking to increase their allocations to alternatives, overall industry allocations to alts have remained at about the same level for the last decade. I asked Matt how we can help advisors gain knowledge and proficiency with alts. He said, “I think that first big challenge to change the alts allocation is really leaning on the front foot, and looking at education as a primary driver for adoption. If we can get financial advisors up to speed on understanding the strategies of alternative investments, how to implement those in a broader client portfolio, and speaking fluently with their clients about alts, you’re going to start to see those numbers change a lot more like the institutional investors that you just referenced.”