Alternative asset managers may say they are interested in the retail market, but figures from EY show 40 per cent say they plan to invest “nothing” to target this demographic.
In the consultancy firm’s Global Alternative Fund survey, which surveyed 224 alternative fund managers and 200 institutional investors, it said scaling up alternatives to the retail market is “far from straightforward”.
Respondents said they viewed individual investors as the “industry’s new frontier for growth”, but this failed to be reflected in their future spending patterns over the next one to two years.
“Despite retail/mass market investors also being of interest in this quest for new clients, the majority of firms (40 per cent) plan to invest ‘nothing’ towards this segment and 27 per cent of respondents plan to invest only a ‘small’ amount.”
Working with the retail market also presents economic challenges as these types of clients will have smaller balance sizes and will push up the cost of distribution and administration. It also noted “relatively few firms” at 11 per cent view building a retail presence as a priority for them.
“Alternative fund managers will need to embrace very different ways of working if they are to efficiently serve a wider group of individual investors, with more varied expectations, via more intermediaries.
“Building a retail presence will require an increased emphasis on brand development, advertising and other forms of marketing. Investment in brand building is growing, but to date, relatively few firms view this as a major priority.”
If they do actively target this market, EY said they will need to significantly improve their education around the products. The most common product targeted at the retail market is private equity at 37 per cent, followed by credit products and real estate at 28 per cent and 25 per cent respectively.
“If alternative fund managers are to successfully increase their engagement with individual investors, many will need to step up their education efforts significantly – not only among investors themselves, but also among the financial advisers that will incorporate alternatives into wealthy clients’ portfolios.
“Leading firms already provide client information hubs aimed at ensuring that even sophisticated investors fully appreciate the key features of alternatives investing – such as understanding that funds do not typically aim to beat a benchmark, and that capital may not be accessible on short notice. Some alternative managers are setting up academies and working with partner firms to build investor awareness and understanding; this trend looks likely to accelerate.”
In November, Money Management wrote how financial advisers were urging fund managers to improve their education around alternatives and help them explain the benefits of the products to their clients who might be nervous about their illiquidity.
Roger Perrett, financial adviser at Freshwater Wealth, said: “I believe fund management businesses have the resources and education for advisers. However, how they offer and provide this information is not ideal and dare I say it – outdated.
“Fund management businesses need to evolve and provide smaller bite-size information via digital means. I would prefer they entice advisers with well-crafted pitches and educating us over time. This will then increase engagement and understanding.”
Rather than the retail market, EY said the majority of firms are seeking to attract ultra-high-net-worth (UHNW) and high-net-worth (HNW), and view the recruitment of business development managers as the best way to raise capital.
Some 34 per cent plan to invest a “large” amount of money in UHNW and family offices, and 38 per cent plan to do so with HNWs.
