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Filed Under:Life Insurance, Life Planning Strategies

Cerulli flags rising demand for alternative investments

Advisor-recommended portfolio allocations devoted to alternative mutual funds range from 5 percent to 25 percent.
Advisor-recommended portfolio allocations devoted to alternative mutual funds range from 5 percent to 25 percent.

Most financial service professionals now include or are looking to incorporate alternative investment vehicles into their clients’ portfolios, according to new research. So concludes Cerulli Associates in its study, “Alternative Products and Strategies 2014: Identifying Opportunities in a Dynamic Investment landscape.”

The annual report examines the market for alternatives within the U.S. retail and institutional market segments. The research attributes growing demand for alternative investments — asset classes other than stocks bonds and cash, such as precious metals, private equity and commodities — to several factors. Among them: increased interest in the vehicles by both institutional investors (57 percent of those surveyed by Cerulli) and financial advisors (52 percent). A majority of distributors (55 percent) also are eyeing the vehicles.

The report adds that advisor-recommended portfolio allocations devoted to alternative mutual funds range from 5 percent to 25 percent, depending on clients’ risk tolerance, though the average remains in the low single digits.

“As allocations to alternatives continue to increase across both retail and institutional channels, so too has the number of managers offering alternative products,” the report states. “There is [a continuing] opportunity for asset managers to grow their alternatives business… through organic growth, acquisition, hiring a subadvisor or lifting out a portfolio management team.

“As asset managers and advisors continue to their efforts to close the educational gap that currently exists, Cerulli concurs that alternative assets’ share of total mutual fund assets will grow with solid momentum,” the report adds. The report goes on to recommend that asset managers devote additional resources to the training and education of intermediaries and distributors on the value alternative investments in a portfolio; and, to that end, partnering with mutual fund manufacturers in instances where they lack retail distribution expertise.

Educational initiatives respecting alternatives, the report continues, should extend to advisors and investors, with a particular focus on “connecting the products’ objective with the investors’ overall portfolio goals.”

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Nichole Morford
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