Income Planning

Unlocking Capital And Opportunity…With Art

The power of democratized access to alternative investments

by Tamer Ozmen

Mr. Ozmen is founder and CEO of Mintus, offering a market for alternative asset classes for Family Offices, UHNWs, Institutions and qualifying mass affluent investors. Visit www.mintus.com.

As the financial landscape continues to evolve, alternative investments are emerging as a compelling and more attainable investment strategy for both high-net-worth individuals (HNWI) and family offices serving ultra-high-net-worth individuals. This growth is fueled by a combination of factors, including managers’ increased focus on offering alternative asset strategies, lowered barriers to entry, and favorable economic conditions.

For financial advisors looking to direct more client funds towards non-cyclical investments, it is important to understand what’s behind this paradigm shift and how to properly educate clients. And for asset managers, the trillion-dollar question is ‘how can we continue to evolve to unlock the immense wealth held by growing classes of investors?’

The rapid growth of alternative asset classes is one of the most striking trends currently shaping the investment world. According to the EY Global Wealth Research Report, the global alternative investment market is projected to soar from $13.7 trillion to nearly $25 trillion by 2028.

Target: Mass Affluent Market

This boom in the alts market is being driven largely by HNWIs and family offices embracing alternative strategies, as well the mass affluent as alternative investments become more accessible. Indeed, in 2023 private market strategies overtook public equities as the largest held asset class by family offices. Despite rallies in public markets in Q4 of 2023, those same family offices and HNWIs continue to see recession risks and overcorrections from Central Banks as strategic drivers to continue allocating more resources towards alts.

To meet this growing demand and recognizing the strategic importance to the broader private banking space, the financial services sector is taking steps to accommodate the rise of alts. This increased focus on accessibility in order to tap into a larger pool of wealthy individuals has been facilitated by a combination of factors brought about by favorable regulatory changes, such as the SEC’s recent framework redefining the framework for individuals who count as an accredited investor or ELTIF 2.0 going into effect in Europe this January.

To begin reaching that larger pool of newly accredited investors, managers began lowering alternative investment minimums and utilizing advisors and fund services platforms to tap into wider distribution networks. More importantly, the market took a bigger leap forward with mutually beneficial collaborations between both alts managers and fintech providers.

A New Synergy Between Managers & Fintechs

Despite rallies in public markets in Q4 of 2023, those same family offices and HNWIs continue to see recession risks and overcorrections from Central Banks as strategic drivers to continue allocating more resources towards alts...

The synergistic relationship between managers and fintechs has further minimized the traditionally high barriers to entry for alternative investments. Lowering price barriers and creating an almost exchange-like interface have been among the top achievements brought about by collaboration between traditional financial institutions and tech firms, as groundbreaking new technologies have made fractional ownership of alternative assets possible. To facilitate this fractionalization, and to empower an even wider pool of investors down to the retail level, forward-looking platforms are using SaaS programs and AI models with data analysis and asset selection to make it easier for investors to participate in these fractionalized ownership opportunities with smaller capital outlays.

This is exemplified in the fine art market, which through increased participation among HNWIs and family offices and more mass-affluent participation through fractionalization, reached $67.8 billion in global sales in 2022, up just shy of 20% since 2016. We expect art and other alternative assets to continue to trend towards democratization, creating more opportunities for shared ownership and giving advisors more avenues for tailored solutions for yield-seeking clients.

With greater access to alternative investments, financial advisors have a unique opportunity to educate their clients about the benefits of including alts in their portfolios. This is increasingly important, as the traditional 60/40 portfolio declined by 16% in 2022.

Moving forward, this trend may continue as the economy faces what is being characterized as a “higher-for-longer” rate environment. This means alternative investments are poised to offer an attractive entry point for investors seeking to hedge against market volatility. Democratization of the alts market means that advisors can now present clients with a range of options for greater diversification in investments, featuring potential for higher returns, and reduced correlation with traditional asset classes like equities and bonds.

However, it is important to note that investing in alternative assets requires patience and a long-term perspective. Many alternative investments can be illiquid, meaning they cannot be easily converted to cash. While this illiquidity may deter some investors, it also provides avenues for risk-averse investors to meaningfully manage risk across their portfolio.

Alts growth presents both challenges and opportunities for asset managers and financial advisors alike. By understanding the dynamics driving their growth and the evolving needs of investors, asset managers can adapt their strategies to better serve their clients’ interests. Financial advisors, in turn, can leverage this knowledge to help their clients navigate the evolving investment landscape and make informed decisions about allocating their funds towards alternative investments.

 

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