We’ll see the big get bigger as alts go mainstream and the largest alternative asset managers reap the benefits, says Michael Sidgmore
It will be the established alternative asset classes – private equity, venture capital, private credit and real estate – that carry the day in 2024.
Alts span a wide range of asset classes and investment products, from crypto and collectibles to venture capital and private credit, but the main story in 2024 will be how the big will get bigger as large alternative asset managers continue to invest in their efforts to work with the wealth channel.
The alts space has grown tremendously over the last 15 years. But that’s mainly been due to the participation of institutional capital – pensions, sovereigns, endowments and ultra-high-net-worth (UHNW) family offices. The private wealth channel has been largely untapped in terms of its exposure to private markets. The majority of wealth advisors have a 1-5% allocation to private markets. This number pales in comparison to some of the world’s most sophisticated institutional investors, such as Yale Endowment or pension fund CalSTRS, who have 30-40% allocations to private markets.
The wealth channel represents the next wave of growth for private markets. Assets under management (AUM) in private markets is projected to grow from $11 trillion-$12 trillion in 2022 to $18 trillion by 2027, according to Preqin. Where will a large portion of this growth come from? Private wealth and individual investors.
Education, maturation and innovation are all responsible for the rise in importance of the wealth channel. Firms like Blackstone and Apollo, among many others, have made it a priority to educate wealth advisors and individual investors on the merits of alts in a portfolio. At the same time, many of these alternative asset managers themselves have matured, some going public, validating their place in the mainstream financial services arena. Blackstone crossing the $1 trillion AUM threshold and entering the S&P 500 is a signal that alts are in the mainstream, quite literally in the same market index with some of the world’s largest companies and brands. Innovation is also enabling the inclusion of the wealth channel in private markets. Ten years of innovation by technology companies, such as iCapital, that have developed the connective tissue between funds and the wealth channel are finally coming to fruition; the rails enabling private investors to access funds have been built in a way that efficiently handle the complex administrative burdens and costs associated with the inclusion of investors at lower investment minimums.
The infrastructure has been built. The rails have been laid. The spigot has been opened. 2024 is the year that traditional alternative assets go mainstream, driven by increased adoption of alts by the wealth channel.
Michael Sidgmore is a partner at Broadhaven Ventures, a venture capital fund focused on fintech, and founder of the Alt Goes Mainstream content platform
