November 29, 2022
The Future of Innovation in Alternatives
Asset managers are scrambling to address the growing appetite of private wealth clients for alternative investments as an integral element of their diversified portfolios and a hedge against inflation and market volatility. Innovation is key to solving three of the biggest pain points managers are encountering in tapping into that fast-growing market.
Managers are increasingly looking to expand their distribution abroad and down market to tap into the retail money flowing into alternatives. Many managers seek the ability to directly take capital from investors in Asia, Latin America, Europe and other markets as competition continues to rise. From online onboarding and virtual data rooms to seamless fund setup and integration, digital innovation is enabling mass distribution and allowing managers to expand quickly, easily and securely like never before.
While managers are always looking to save costs and time, that imperative is particularly important as they expand their retail investor business. The front, middle and back-office servicing needs of hundreds or even thousands of retail investors are very different than ten or twenty institutional LPs, particularly in an industry that to a shocking degree still relies on paper, fax and manual processes. Digitization of operations can yield dramatic efficiency gains, cutting subscription periods from weeks to mere seconds, as just one example, and substantially reducing costs as labor intensive functions are moved online.
The net result is also a much better and more seamless client experience, providing a significant competitive advantage in attracting investors increasingly expecting an Amazon-like experience whether they are buying personal care products or alternative investments.
As investors embrace alternatives as a hedge against inflation and volatility, technology can provide a familiar digital experience for investing in funds. Equally important, next generation innovation, is making secondary trading far easier and more accessible. That’s key to ensuring that investors are able to get out of an alternative investment position as easily as they got into it, further boosting the attractiveness of alternatives to the retail market.
Retail investors are driving the rapid growth of the global alternative investment market, which is expected to reach $23.21 trillion in AUM by 2026 from $13.32 trillion in 2021, according to research and analytics firm Preqin. Innovation is providing the expanded access, operational efficiency and improved investor experience that makes that possible.