A study from the asset management arm of Goldman Sachs reveals a picture of the wealthier end of HNW Americans tending to hold alternative assets (private equity, venture capital, private credit, forms of real estate, others) while, in some cases, those at the lower end haven't even discussed the topic with an advisor.

A US study of 1,000 high net worth investors finds that fewer than half (41 per cent) have talked about alternative investments with advisors, even though there has been relentless industry noise about areas such as private equity and venture capital in recent years.

Among the wealthier end of the spectrum surveyed – those with more than $10 million of investible assets – 80 per cent of households allocate to alternatives. 

The findings come from a Goldman Sachs Asset Management report, Opening the Door to Alternatives.

“Private markets are rapidly gaining traction well beyond institutional investors,” Kristin Olson, global head of alternatives for wealth at Goldman Sachs, said. “Our survey shows that as wealth grows, alternatives become the cornerstone of portfolio construction – valued for diversification, performance, and access to innovation. The challenge and the opportunity now lie in expanding education and creating solutions that meet investors where they are.”

Alternative assets, a term covering private equity, venture capital, private credit, forms of real estate and hedge funds, appear to be all the rage. This news service regularly reports on moves by policymakers and firms to widen access to the sector (sometimes referred to as "democratizing" access). Advisors say they are keen to put these assets on clients' menus. For example, the Trump administration has pushed to allow such assets to be held in 401(k) retirement plans; the Accredited Investor rule has been adjusted. However, there have been skeptical noises about this trend.  

Among the findings, the study found that cash balances are high: 20 per cent of net worth is held in cash across wealth tiers. There is a generational shift: Millennials allocate 20 per cent to alternatives, far above Baby Boomers at 6 per cent and Gen X at 11 per cent.

As people become wealthier, alternative appetite rises: 39 per cent of investors with $1 to $5 million use alternative investments, rising to 63 per cent for households with $5 to $10 million, 80 per cent for investors with over $10 million, and 91 per cent for those above $20 million. 

Private real estate is most used by individuals with under $5 million in investible assets; above $5 million usage often broadens to also include private equity, growth equity, and other alternatives. 

Despite more than half (56 per cent) of individual investors generally labeling alternatives as “high risk” performance (46 per cent) and diversification (34 per cent) are the primary drivers for those invested in or considering investing in alternatives, suggesting that these concerns often diminish with experience, the report’s authors said.

Advice
Of the investors surveyed, 80 per cent used at least one financial advisor. Despite managing on average 59 per cent of investor wealth, “financial advisors seldom address alternatives in conversations with clients,” the study said. “Financial advisors are not the main source of information on alternatives,” it said.

Millennials cite social media, while Baby Boomers rely on traditional financial media as a source of information on alternatives.

“Evolving product structures such as evergreen and open-end funds are lowering barriers to private markets,” Kyle Kniffen, global head of alternatives for Third Party Wealth at Goldman Sachs Asset Management, said. “Education is essential as these strategies take a more central role in wealth portfolios.”

Survey data was collected July 18 and August 8, and those taking part had more than $1 million of investible assets, serving as the primary decision-taker in a household and aged 25 or older.