Democratizing Alts: Providing Greater Access to Private Markets
Traditionally, private markets and other Alternative exposures have been limited to pension plans and institutional investors. However, shifting dynamics in public markets, elevated uncertainty and enhanced product design, have accelerated the democratization of Alts to a broader pool of accredited investors.Oct. 19, 2022
Expanding access to Alternatives
An emergent theme in recent years has been the migration of institutional investors’ assets from public to private markets. Allocation to these walled gardens — via hedge funds, venture capital, private equity, private credit, real estate and infrastructure — currently accounts for approximately 30% of public pension plan allocations.
Bringing Alts to the asset mix represented a concerted effort to strengthen portfolio construction. Better diversifiers were needed and, as so often occurs, change began at the institutional level.
Now access is being democratized for the benefit of family offices and ICPMs.
The next phase of Alternatives adoption
Imagine the ability to invest in venture capital funds, private equity or credit without submitting a multi-million-dollar ticket. The next phase of Alts access will likely make this possible for new populations of investors, unlocking satellite positions to complement core equity and fixed income.
Portfolio managers who are concerned about the volatility of public markets can, for instance, enhance risk-adjusted returns if they are willing to allocate to strategies with limited liquidity.
Previously, fears of capital lock-ups and logistical challenges deterred interest in Alternative asset classes. But there has been a shift in portfolio construction — using a total portfolio approach, liquidity is managed at the portfolio level rather than at the individual fund level, allowing advisors to invest a portion of their portfolios in longer-term assets with the expectation of illiquidity premium.
Family offices that deal with intergenerational wealth may find this especially true as preservation of capital becomes a more vital theme and time horizons are stretched.
Imagine the ability to invest in leveraged buyouts or venture capital funds without submitting a multi-million-dollar ticket.
Many family offices are already embracing opportunities now that the vehicles are more manageable. A recent survey showed 46% of Advisors polled believe that private equity will be the fastest growing Alternatives strategy in the market, more than even digital assets.1 But when asked about the greatest challenges for allocating to Alts, investors’ education is among the top concerns given that they are often complex and different from traditional products.
For end clients to understand Alts and what they offer is essential. Though private markets products are becoming more accessible, product education is essential to increase comfort from both the advisor and the investor. This can be burdensome – particularly as managing know-your-product (KYP) requirements alone can be extremely time-consuming.
How we are supporting the transition
With BMO GAM, family offices receive the foundational support needed to execute an Alts strategy. Our team is familiar with the challenges typically encountered by wealth managers, and have the expertise in-house to guide them through the process.
We have also launched a new Alternatives team with the purpose of being a premier provider of Alts solutions in Canada. We are using our internal strengths to bring products to market that we have a right to own — which may include leveraging our impressive history as a credit underwriter, as well as our relationships with niche asset managers who are leaders in their space. Where we don’t have expertise, we are accelerating partnerships to bring leading solutions to clients.
We have also launched a new Alternatives team with the purpose of being a premier provider of Alts solutions in Canada.
Building trust is a clear first towards achieving our aims. As a bank-owned asset manager with a 200+ year heritage in serving Canadians across their financial needs, BMO GAM brings a measured approach in selecting the products, strategies and partnerships it offers for investors.
We look forward to helping guide our investor clients on their journey to attain the same tools for diversification that institutions have long enjoyed.
To learn more about our Alternatives capabilities, please contact your BMO ETFs Institutional Specialist.
1 AIMA Canada, “Evolution of Alternative Investments in Canada & the Advisor Opportunity.”
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