The Rise of Alternative Investments in Wealth Management

Author: Robert Morales, Managing Director, Head of Advisory Services & Products, Wealth Management

Do you have wealth management clients who are looking for an alternate source of revenue and portfolio diversification in today’s environment with relatively low interest rates and overall weak market performance? Alternative investments, previously inaccessible to most individual investors, may be a solution for some of your clients with the right risk profile. Since these funds typically don’t correlate to the stock market, they can be used to add diversification to a portfolio and help mitigate volatility.

Alternative investments are asset classes or investment strategies that fit outside of the traditional investment asset classes. Some examples of Alternative Assets include REITs, Hedge Funds, Long/Short Investment Funds, Private Credit, and Private Equity.

Recognizing the opportunities for asset growth in the mass affluent and high net worth investor markets, alternative managers have been launching private wealth divisions in recent years to attract new money from financial professionals across all channels. In 2020, mass affluent and high net worth investor markets accounted for $177 trillion and are expected to grow to $222 trillion by 2025, according to a report by PriceWaterhouseCoopers. In contrast, institutional assets under management in 2020 were $63 trillion and expected to grow to $78 trillion by 2025.

Advancements in technology – including the introduction of new platforms like CAIS – have also made the move to investing in alternatives easier for individual investors. These platforms remove operational bottlenecks making the alternative asset transaction experience – from research to execution – comparable to that of buying a mutual fund. These types of platforms provide advisors and wealth management clients with access to due diligence, research, streamlined operations, and tax reporting.

These newer solutions also feature lower minimums for investing in alternatives, which makes them accessible to many more investors. For example, you might find a hedge fund that would normally require a minimum investment of $5 million from institutional investors open to individual investors on platforms like CAIS for a minimum of $50,000.

Alternative Advantages

The structure and features of alternative investments offer investors some advantages you won’t see with more mainstream investments, including:

Ability to create a portfolio of investments to capture growth trends: One advantage alternative managers have over managers of other types of investments is the smaller relative size of the portfolio and the longer-term nature of these investments, referred to as the illiquidity premium. These features allow the manager to be more agile and nimble in making changes in the portfolio which allows investors to benefit from emerging and shorter-term growth trends.

Potential to invest in companies where managers provide resources to them to expand: Another advantage of investment in alternatives is that managers have a stronger vested interest in the companies that are part of their portfolios. As a result, they are more willing to provide these companies with resources to help them expand in a variety of ways, whether to fund international growth, expand the customer base or build scale through acquisitions.

Access to growing network of private companies: Investing in alternatives offers individual investors access to investments in growing, profitable private companies not available through more traditional investment vehicles. It allows investors to tap into the potential of high growth private companies and enjoy – in many cases – a higher rate of return than traditional investments.

Education is Key: Understanding Your Client’s Risk Profile

While alternative investments may offer your clients certain advantages, it’s important to educate your clients about the potential risks associated with these types of investments.

Understanding your client’s total investment holdings is important when considering alternative investments. In general, alternatives should make up only about 10 to 15 percent of a client’s entire portfolio.

In addition, while alternatives can bring a higher rate of return, this is not guaranteed, and these types of investments also bring higher risk. These investments are also more complex than traditional investment vehicles and often have higher fees associated with them.

Finally, it’s also important for investors to understand the long-term nature of investing in alternatives. Most of these investments require a minimum investment timeframe of five to 10 years, making them much more illiquid than other types of investments.

For more information about investing in alternatives for your wealth management clients – including accessing the CAIS platform – contact Robert Morales at

To learn more about Momentum Independent Network, contact Wealth Management at or 833-4HILLTOP.

The paper/commentary was prepared by Momentum Independent Network (MIN). Momentum Independent Network Inc. is a registered broker-dealer and registered investment advisor that does not provide tax or legal advice. MIN and Hilltop Securities are wholly owned subsidiaries of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, TX 75201 (214) 859-1800, 833-4HILLTOP. Member FINRA/SIPC

For professional use only.

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