Managers of alternative asset classes are busy working out how to cater to emerging client bases, with private wealth increasingly on their radars.
While institutional investors were early to invest in areas such as infrastructure and private equity, sources said engagement with private wealth is, in most cases, behind the curve.
But that is changing. A number of money managers running alternatives strategies said they are picking up interest from, and consequently working hard to adapt, to new interest from high-net-worth individuals.
"The interest from the wholesale channel in alternative strategies is definitely increasing with private banks, family office and wealth managers playing a larger role as aggregators and allocators of assets," said Gihan Ismail, head of strategic partnerships at multiboutique investment manager Fidante Partners in London. She said this is particularly true across European markets as "many of these institutions play important roles in markets where the definition between retail and institutional is more blurred."
And the opportunity is huge: The Boston Consulting Group's Global Wealth 2018 report said global personal financial wealth grew 12% in 2017 to $201.9 trillion. The most affluent segment, those with more than $20 million, represented $26 trillion of investible wealth at the end of 2017.
But grabbing even a slice of these assets is taking work and adaptation. In some cases, it means managers must place a lot of trust in intermediaries such as private banks.
"One of the newer areas of traction for us is private wealth," said Kate Campbell, London-based co-head, European distribution at AMP Capital Investors Ltd. "Over recent years, infrastructure equity has generally done what it said it was going to for the institutional world," she said, in terms of delivering sustainable growth, cash yields and having defensive characteristics. "Now the private wealth space is coming to us. We are starting to work with aggregators across Europe who gather small tickets from these clients," Ms. Campbell added.
Some money managers have chosen to partner with intermediaries to cater to high-net-worth investors. AllianceBernstein (AB) LP (AB) on July 31 said it had agreed with iCapital Network to provide a white-label platform enabling these types of investors at registered investment advisers and multifamily offices to access the $540 billion money manager's alternative investments platform.
iCapital — a financial technology platform — will help AB to simplify access to its alternative strategies and to streamline subscription processes and performance reporting.
Jeffrey A. Levi, principal at Casey Quirk, a practice of Deloitte Consulting, in Darien, Conn., said there has been "significant institutionalization within retail markets. In many places the sophistication of those buyers has started to mirror the institutions, and many consultants advising wealth platforms have seen a lot of consolidation among the decision-makers in the wealth space," he said, citing the coming together of multifamily offices, financial advisers and registered investment advisers. "Buyers are starting to emerge who are seeking more sophisticated expertise," Mr. Levi said.
Established a relationship
In order to get to these clients, AMP Capital established a relationship with a global private bank. "Our interaction would be focused on the intermediaries, rather than their underlying client base," Ms. Campbell said. She did not name the bank.
And that means working and thinking slightly differently from how managers work with institutional clients.
"The initial marketing of it might be more intense, as private banks might be more keen for us to visit and present to their different sales forces located around the world. But then it is up to them — it is up to us to arm the intermediary with as much information as possible and to position our product correctly," Ms. Campbell said. But the firm is not changing its style or strategy to fit this client base.
Affiliated Managers Group Inc. also is seeing interest from wealthy people, said Hugh Cutler, London-based executive vice president, head of global distribution. "We are seeing strong interest in both liquid and illiquid strategies. On the illiquid side, we are seeing demand for infrastructure and private equity from both private wealth and DC clients globally. On the liquid side, we have seen strong and increasing appetite from private wealth clients, especially for alternative risk premia and equity market-neutral strategies," he said. There is also interest from this client segment in commodities and other strategies.
The firm is working with private banks and "other sorts of wealth distributors so that we can help them populate their clients' portfolios with our distinctive return streams," Mr. Cutler said.
And other managers are having to adapt to the different demands of wealth clients. Rupert Robinson, managing director at Gresham House Asset Management in London, said the firm is seeing interest from private wealth clients in renewables strategies, specifically solar and onshore wind, and U.K. forestry.
He said while the "human" side of the sales strategy remains important, "technology is key to a broader sales strategy. This includes effective use of websites, internet and client portals to deliver appropriate messaging along with supporting materials," Mr. Robinson said.
The firm works with a number of third-party intermediaries and family offices.
Can't be underestimated
The influence of third parties on this new channel of clients cannot be underestimated by alternatives managers.
"The elements of fund and manager selection are becoming more consistent across the wholesale and institutional channels," said Fidante's Ms. Ismail, such as due diligence processes. "But in many cases, the wholesale channel also relies more heavily on ratings from recognized databases such as Morningstar. Inclusion on these databases is therefore crucial to accessing this channel as this is often the start of the screening process. Understanding the selection process in each market is an important element of our distribution team's focus," she said.
One area of alternatives has already made its way onto wealth clients' buy lists: private equity.
"It's the most developed market," said Kevin Albert, New York-based partner responsible for business development at Pantheon Ventures (U.S.) LP.
He said the business is active globally, and particularly in the U.S., and is "totally intermediated."
A spokeswoman for private markets firm Partners Group AG, which has $78 billion in assets under management, said that as at Dec. 31 distribution partners and private individuals accounted for 14% of the firm's client base in terms of AUM, up from 6% as of Dec. 31, 2002. She highlighted a partnership in 2017 with Swiss private bank Union Bancaire Privee, which enabled the firm to offer a strategy providing the wealth market, or "qualified investors," with global exposure to private debt and to credit markets.