Retail investors behind firms' growth

Money managers are seeing increased inflows in multiasset and alternative investment strategies from non-institutional clients, which some believe could be the beginning of a permanent shift.

Institutional investors are still putting money into multiasset and alternative investing strategies; it's just that the use of these strategies by retail investors is growing faster.

“In terms of flows, multiasset products and alternatives continue to capture significant growth and more growth than most other products,” said Gary Shub, a Boston-based partner and global topic leader for asset management at Boston Consulting Group. “In terms of where it's coming from … it's retail.”

One reason for the growth is retail investors have become more outcome-oriented since the global financial crisis, which has led them toward multiasset and alternative strategies, Andrea Lisher, managing director and head of U.S. funds at J.P. Morgan Asset Management, New York, and Jeffrey Levi, a director at Casey, Quirk & Associates LLC, Darien, Conn., said in separate interviews.

Ms. Lisher also noted that the success of institutional investing in multiasset and alternatives has spilled over into retail. Asset managers such as JPMAM, BlackRock Inc. and BNY Mellon Corp. have launched several new multiasset and alternatives mutual funds in the past few years to accommodate and fuel retail investors' demand.

Mr. Levi said many institutional investors already have multiasset allocations, while those strategies are still new to many retail investors. There are also more strategies — such as global macro, event-driven and arbitrage approaches — competing with this portion of institutional investors' portfolios.

“Multiasset is an area that's seen significant growth in the retail space as financial advisers use these products as a core part of their portfolio,” Mr. Levi explained.

Kenneth Barbuscio, managing director and head of platform development for New York-based BlackRock Inc.'s U.S. retail division, agrees. “The majority of (multiasset) growth and inflows you've seen is coming from retail clients,” he said.

BlackRock had retail long-term net inflows of $14 billion in the first quarter of this year, including $3.6 billion into multiasset class strategies. That compares to total net institutional inflows of $4.97 billion, including $1.3 billion into multiasset class strategies.

In addition, BlackRock experienced net retail inflows of $16.59 billion and $8.34 billion during its fourth and third quarters of 2013, respectively, while it saw institutional net inflows of $4.8 billion in the fourth quarter of last year and net outflows of $3.31 billion in the third quarter. BlackRock's total multiasset inflows were $17.36 billion in the fourth quarter and $4.86 billion in the third.Three years ago, BlackRock's $208 billion in multiasset AUM — 5.7% of its total AUM at March 31, 2011 — was driven primarily by institutional net inflows of $12.4 billion, while retail and high net worth clients added $2.5 billion.

At year-end 2011, institutional investors represented 63% of BlackRock's $225.2 billion multiasset AUM, while retail and high net worth investors accounted for 37%.

Retail clients “are seeking outcome-oriented investments,” said Mr. Barbuscio. “That's driving interest in multiasset and alternative strategies.”

Executives at several large money management firms — including those at Bank of New York Mellon, Invesco Ltd. and T. Rowe Price Group Inc. — were unable to break out how much of their multiasset and alternatives net asset flows were from retail clients compared to institutional.

J.P. Morgan Chase & Co.'s first-quarter earnings statement shows that $47 billion of its $72 billion in net inflows during the past 12 months at J.P. Morgan Asset Management were for multiasset and alternatives strategies. The money manager's institutional assets under management, however, have not changed significantly on a year-over-year basis — $773 billion out of $1.65 trillion total AUM at March 31, up only 3% from the year-earlier period. Its retail and private banking assets, meanwhile, went up 26% and 11%, respectively.

Ms. Lisher told Pensions & Investments she has seen increased multiasset and alternative flows from non-institutional clients both within her company as well as within the industry as a whole. She called it “a shift in terms of how (retail) clients think about building portfolios and utilizing investment solutions. And I believe that's here to stay.”

Leo Grohowski, executive vice president and chief investment officer of Bank of New York Mellon Wealth Management, New York, is also seeing an increased desire for diversification that takes high-net-worth investors “into multiple sources of less correlated alpha strategies.”

“I'm seeing a greater appetite for more institutional-quality assets in the high-net-worth space. This includes alternatives.”

Multiasset strategies have been an important part of BNY Mellon's product development over the last five years to gain growth from high-net-worth investors, Mr. Grohowski said. Last month, BNY Mellon launched its alternatives diversifier strategy mutual fund under its Dreyfus family of mutual funds. “The thirst for yield has also taken investors into multiasset solutions,” Mr. Grohowski added, which prompted BNY Mellon to recently launch a yield enhancement strategy.

He also noted that he has seen this demand for alternatives in the family office sectors.