There has been a steady drumbeat of noise around the desire and need for mass-affluent investors to gain access to private markets and relatively illiquid assets so that they can obtain superior yields.

(An earlier version of this article appeared on Family Wealth Report, sister news service to this one.)

A poll of more than 300 US wealth industry figures finds that access to alternative assets such as private equity and venture capital has become a more important goal, with many advisors thinking that the old stocks/bonds recipe in portfolios is outdated.

The survey, carried out by US fintech firm CAIS at the 2022 Morningstar conference in Chicago, found that 80.9 per cent of financial professionals think that all retail investors should have access to such investments. 

The results, perhaps not surprising given CAIS’s role in “democratising” access to these assets, nevertheless reinforce a narrative that has unfolded in recent years. For the past decade, thin or negative bond yields, low yields on listed equities and disenchantment with conventional asset management, have made investors search for alternatives. As a result, private equity, VC, private credit, real estate and forms of hedge funds have benefited from inflows. Another force at work is that the number of listed firms has fallen relative to privately held ones over the past two decades.

Among the findings, more than a third of survey participants (33.6 per cent) think the traditional mix of stocks and bonds is no longer effective for investing, while a further 42 per cent said the 60/40 portfolio is not as effective as it used to be. 

Among the respondents who were identified as investment or financial advisors, 84 per cent said that they were recommending that clients who meet accredited investor requirements should allocate to alternatives.

“As traditional assets face muted expectations, alternative investments may provide a diversified method for investors looking to hedge against increased volatility and potential enhanced returns,” Matt Brown, CEO and founder of CAIS, said. “These survey results validate our conversations with the independent wealth management community, highlighting a growing urgency for access to alternative products. CAIS is answering that call by providing the connectivity and education that advisors can use to meet this demand.”

(This publication has interviewed CAIS on its role in widening access and general trends in the space.)

The study’s findings also point to industry-wide scrutiny on the definition of accredited investor – a longstanding threshold for access to alternative asset classes, the report’s authors said. Almost three-quarters of respondents (74.9 per cent) said the SEC’s definition of accredited investor needs to be updated. 

Among them, 43.6 per cent said the definition is too rigid, while 41.4 per cent said the income threshold for individuals should be reduced. Only 11.5 per cent think the definition is too lax.

Stringent qualifications are not the only obstacles that participants believe investors face when seeking access to alternative asset classes. Almost seven in 10 respondents (68.98 per cent) cited the lack of education on alternatives as a hurdle to investing in them. Respondents also named high levels of administration and paperwork (37.6 per cent), and concerns about due diligence and compliance processes (34.3 per cent) as difficulties when making allocations.

Survey respondents said that private equity (49.8 per cent), real estate (38.9 per cent) and private credit (33 per cent) are the three alternative asset classes most likely to outperform the market in 2022. Alternative assets are expected to make up to 24 per cent of the global investable market by 2025, up from 12 per cent in 2018.

Besides CAIS, a range of firms have tapped into the rising demand for more access to alternative assets: iCapital Network, YieldStreet and Moonfare. A common point is using technology to strip out conventional middlemen in the process, reduce costs, and make it easier for investors to gain access for lower individual minimums.

Last year this news service spoke to private equity titan Blackstone about its use of "perpetual," aka evergreen, structures and how they also widen access to investors.