percent of financial advisors in a survey released
Thursday by iCapital Network, a financial technology platform, currently have
at least 5% of client assets in private equity funds and 27% have at least 5%
of client assets in hedge funds.
Over the coming year, the majority of respondents said they
planned to maintain or increase exposures to alternatives, motivated mainly by
potential investment returns and diversification goals: 87% to private equity
funds, 61% to hedge funds and 93% to private direct deals.
“This research shows that advisors recognize the potential
benefits of investing in alternative asset classes,” iCapital Network’s
Calcano, said in a statement. “However, the ability to access
high-quality alternative investments has historically varied widely based on
the business model of an advisor, a finding evidenced in this research.”
The research involved some 450 respondents, 55% of which
were RIAs, 29% independent broker-dealers and 16% wirehouses. Virtually all
advisors had been in business for at least 10 years, and more than 60% for 20
years or longer.
Fifty-five percent had built practices with $500 million to
$750 million in assets under management, while 34% were managing upward of $750
million, the latter group concentrated among the wirehouse representatives.
According to the survey, 77% of advisors allocated to
private equity funds in client portfolios.
Two-thirds of advisors had less than 5% of client assets in
private equity funds, but this was primarily driven by RIAs and IBDs, with more
than 70% of each cohort allocating at this relatively low level compared with
just 38% of wirehouse advisors.
Forty-eight percent of wirehouse advisors allocated between
5% and 10% to private equity funds, and 11% allocated between 10% and 15%.
Nine out of 10 advisors surveyed cited attractive returns
as the most compelling reason to invest in private equity funds.
An outsize number of RIAs, compared with their wirehouse
and IBD counterparts, also pointed to diversification and the unique nature of
the investment opportunities as reasons to invest. The report said this may be
related to the historically limited access to private equity funds within the
As for obstacles to greater investment in private equity
funds, 86% of advisors cited finding more appropriate clients, 61% high
minimums and 53% illiquidity. Fifty-four percent of IBD firms and 49% of RIAs
also cited ease of access.
Over the coming 12 months, 54% of advisors planned to
invest the same in private equity, 32% more and 13% less.
“The majority of advisors we surveyed have incorporated
private equity into client portfolios due to its performance in relation to
public markets over longer-term periods,” Nick Veronis,
co-founder and managing partner at iCapital, said in a statement.
“The characteristics of the asset class increasingly appeal
to advisors who recognize the potential to promote a buy-and-hold discipline
and to seek enhanced client returns amidst challenging market dynamics.”
Average allocations to hedge funds were lower than to
private equity funds among surveyed advisors, according to survey data.
This echoed the latest
report from the Tiger 21 peer-to-peer learning network, which
showed that its wealthy members allocated 21% of their portfolios to private
equity in the first quarter and just 5% to hedge funds.
Seventy-three percent of advisors in iCapital Network’s
study allocated less than 5% of their assets to hedge funds, and 22% allocated
between 5% and 10%. Wirehouses were more bullish on hedge funds than their
independent peers, with 67% planning to maintain or increase investments; 54%
of advisors planned to at least maintain their hedge fund exposure.
As with private equity, investment returns were the main
reason for advisors seeking out hedge fund investments, followed by
Wirehouse advisors were less likely than their counterparts
to cite ease of access and illiquidity as issues affecting their ability to
invest in hedge funds, which pointed to differences in business model
characteristics such as net worth and infrastructure among advisor models,
according to the report.
Eighty-three percent of RIA respondents said they gained
access to hedge funds directly from general partners, with 14% also using
feeder funds. RIAs steered clear of hedge funds of funds — consistent with an
overall industry trend in recent few years, the report said.
In contrast, advisors at wirehouses and IBDs continued to
use both feeders and funds of funds, perhaps because of legacy programs in
place at their home offices, iCapital suggested.
“Hedge funds can employ a wide array of trades and
strategies to take advantage of changes in the economic and geopolitical
Duff, managing partner and head of independent wealth solutions at
iCapital, said in the statement.
“It’s critical that advisors have access to comprehensive
education and due diligence when determining how hedge funds may fit into
Eighty-eight percent of advisors said they were interested
in private direct investments for the returns they offered, and 57% said these
were “unique opportunities.” Only 33% cited their diversification benefits,
wirehouses being likeliest to do so.
For purposes of the study, iCapital used the term “direct
deals” to cover investments in small and midsize privately held companies,
startups and other private assets such as intellectual property rights and
royalties; it excluded private real estate investments.
The survey found that the average check size into private
direct investments ranged from less than $1 million at RIAs to between $1
million and $5 million at wirehouse and IBD advisors.
Across all advisors, 45% said they allocated less than $1
million per deal, 42% between $1 million and $5 million, and 4% more than $10
million. However, 18% of wirehouse advisors said they typically invested upward
of $10 million per deal.
To source deal flow, 58% of advisors said they relied
primarily on their networks, 42% on family and friends and 21% on angel groups.
Respondents reported that finding more appropriate clients and limited deal
flow were the major issues affecting their ability to invest in direct deals.
Forty-eight percent of advisors said they planned to
increase their allocations to direct investments over the next 12 months, and
45% said they would invest the same amount.
RIAs evidenced the strongest interest in increasing
exposure, which could present an opportunity for aggregation platforms offering
high-quality deals and due diligence to these advisors, iCapital said.
“Despite the shortage of high-quality deals that are
available to them, advisors have expressed more enthusiasm about private direct
deals than other alternative asset types,” Hannah Shaw Grove,
managing director and chief marketing officer at iCapital, said in the
“Advisors and their clients will continue to look to their
personal and professional networks to source unique investment opportunities.”
Several obstacles continue to impede advisors seeking to
invest in alternatives: finding more appropriate clients, illiquidity and high
minimums. The report said this suggests that advisors need wealthier clients
with the risk tolerance and diversification goals appropriate for these
“Technology, new product structures and education are
removing many of the barriers associated with investing in alternatives, but
certain characteristics inherent to alternative investments that drive
performance, like longer investing timeframes, will remain,” Tom Fortin,
managing partner and chief operating officer at iCapital, said in the
“This places a greater emphasis on portfolio construction
expertise for advisors seeking to reap the return and diversification benefits
here for the original article from Think Advisor.