In the 2020s, one of the most significant secular trends in investing isn’t a return to more “normal” and volatile markets, interest rates or inflation; it’s about access to new capital markets and the structures accompanying them.
After nearly a decade of building the foundation, private markets are finally making their way toward the individual investor, and at scale. Whether you’re enthusiastic or a cautious skeptic, one fact remains: this is no longer a niche trend, and it’s not something you can ignore.
My point is not that it’s imperative for you to adopt these strategies; that’s for you to decide. What I am going to tell you is that products are growing in complexity as they’re gaining in popularity.
As we have pointed out, the boundaries between public and private, traditional and alternative, institutional and retail are rapidly disappearing. What’s left are a lot of products to choose from. The past six months have shown just how quickly things have changed.
Whether you were an early adopter or you’re interested in growing an allocation to alternative investments, there are three mega-trends you should be aware of:
1. (Very) Big Partnerships
For the last few years, large asset managers have made considerable efforts to buy or build their private markets and private wealth capabilities. GPs like Blackstone, Apollo, KKR, and Carlyle have invested heavily in private wealth distribution, while asset managers like BlackRock, Franklin Templeton, Invesco and Vanguard have invested heavily in product development.
However, we’ve reached a stage where industry titans are putting capital and distribution muscle behind large, transformative deals. Look no further than two recent examples: Capital Group announcing a partnership with KKR, and Blackstone teaming up with Wellington and Vanguard. These aren’t experimental toe-dips that we’ve experienced in the past. In fact, these are foundational moves aimed at integrating private market strategies into the core toolkits of wealth managers.
These are long-established firms with track records behind them. Capital Group brings a 90+ year history of serving advisors and institutions alike. Pairing that with KKR’s expertise in private markets is a signpost of what’s to come: greater access and economies of scale. Meanwhile, Blackstone and Wellington’s strategic alliance with Vanguard, the poster child of low-cost, public-market investing, suggests something even more profound: alternatives are no longer “alternative.”
2. The Rise of Semi-Liquid Structures and Alternative ETFs
A decade ago, the very idea of “alternative ETFs” or “semi-liquid” funds would’ve sounded like an oxymoron. Today, they’re one of the fastest-growing categories in asset management.
According to our measurements, semi-liquid funds and liquid alternatives now represent $800 billion in AUM, a fraction of the $25 trillion in alternative investments (private capital and hedge funds combined), but are quickly growing as more efforts to develop products accelerate. These vehicles are designed specifically for the wealth channel, offering greater liquidity than traditional private funds while still accessing illiquid asset classes.
Simultaneously, we’ve seen recent interest from asset managers in launching ETF offerings with access to private markets in highly liquid wrappers. While the uptake on these structures has been mixed at best, it shows a desire and a willingness to experiment.
3. Private Markets in Your Retirement Plans
Perhaps the most important and least appreciated development is expanding private markets access into defined contribution plans. Perhaps this was unthought of only a few years ago, but momentum appears to be growing here as well.
Guidance from the U.S. Department of Labor, coupled with structural innovations like collective investment trusts and professionally managed accounts, has opened the door for these strategies to be used inside 401(k) plans. The recent announcement of State Street and Apollo[1] partnering to offer public-private target date funds will likely be one of many in the years to come.
Why does this matter? Because the $10 trillion DC market in the U.S. has long been locked out of what the global DB market has accessed for decades. Now, individual investors may be able to participate.
What Should Advisors Do About This?
To be clear, this is not a call for naïve enthusiasm. After all, these products are still being sold to, not bought by, investors. And they’re complex products. As an industry, we’re still working through gaps in product design, fee structures and regulatory clarity. I think Morningstar’s recent announcement to begin wholesome coverage of semi-liquid products is the first step of acknowledging their complexities alongside a broader trend of them becoming more mainstream.
As the CAIA Association has consistently pointed out, education isn’t just about understanding the benefits of investing in alternatives; it’s about knowing the risks, their appropriateness and when to walk away.
Advisors who fail to educate themselves on private markets increasingly do their clients a disservice by ignoring them. Clients will read about these funds, hear about them from friends, and (eventually) see them in their employer’s retirement plan options. If you cannot guide them through the universe of products at their disposal, someone else will.
Be Informed, Not Passive
The message I’m trying to convey isn’t that every portfolio needs a 20% – 30% allocation to private markets. The message is that you can’t afford to ignore this shift. The infrastructure is being built, and the partnerships are in motion. Whether you like it or not, you and your clients will be touched by this change.
So now is the time to get educated. Ask the hard questions. Scrutinize the structures. Understand the liquidity profiles and fee implications. Finally, make sure whatever you incorporate into your client’s portfolio is additive to their situation. Loading up on private equity funds doesn’t make sense for your 80-year-old client who is drawing down their assets late in retirement.
Most importantly, don’t bury your head in the sand. Because ready or not, private markets are coming. Informed advice will be the difference between leading and lagging in this new era of portfolio construction.
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