Alternative funds are increasingly seeking to raise assets from the retail space as institutions are constrained on the volume they can allocate to the space.
According to the latest ‘Global Alternatives Fund’ survey from EY, the firm found two in five alternative fund managers were turning their focus to wealth management and retail channels for growth.
“Managers, looking to broaden their LP base, given limitations that institutional investors may have on additional flows to alternatives, are identifying retail, high-net-worth and family office investors to be favourable segments for raising assets,” it said.
“With institutional investors allocations remaining flat, alternative fund managers seeking growth are turning to retail channels, with numerous managers looking to increase capital within this investor base.”
Some 42% of managers said they were looking to increase the amount of capital raised via retail or wealth management clients, 49% were listing their funds on bank wealth platforms and 12% had carried out increased marketing aimed at retail investors.
Managers were also accessing retail clients via fintech platforms which addressed traditional challenges in servicing smaller clients.
Managers also stated that environmental, social and governance (ESG) issues were taking “centre stage” in their investment strategies and company-level management to satisfy investor demands.
Some 33% of respondents ranked it as a top three priority for them, up from 19% in 2020, and 11% said it was their top priority.
“These demands include investing in companies that actively incorporate sustainable practices into their corporate strategy planning and disclosure efforts and investing in companies that offer sustainable products,” the report said.
EY indicated that managers who failed to adapt to the new ESG world or provide transparency on their policies would lose out in the future when it came to investors making capital allocations. Prior EY research had found 35% of clients with sustainability goals would leave their adviser in the next three years if they weren’t meeting those goals, twice as many as those without goals.
“Although most managers are providing their ESG policies and procedures upon request, investors want increased transparency in reporting to demonstrate that their managers are meeting their ESG requirements,” the report said.
“In response, managers point to a lack of quality data as one roadblock to adoption — but adopt they must, for in the past year, one in five investors decided not to invest with managers without policies, citing inadequate ESG integration as a primary reason for their decision. As a result, managers who neglect this trend may lose out on investor interest and capital allocations.”
This echoed comments by the Responsible Investment Association of Australasia (RIAA) that 86% of investors would expect their financial adviser to bring up ESG investing rather than it being led by client demand.