The retail numbers into alternative investments are staggering—estimated at $2-3 trillion over the next two years alone.
For perspective, currently there is about $100 trillion of global assets under management, with retail assets at $35 trillion of the total. Retail has passed Institutional for the first time, thus growing in importance. In fact, retail channels will account for 67 percent of global AUM by 2030, up from 45 percent in 2014, estimates a recent Indefi report. See statistics below.
Furthermore, with current retail investment in alternatives estimated by McKinsey to average only 2 percent of overall investment portfolios, the room for growth in alternatives is immense. McKinsey projects the retail allocation to alternatives has potential to more than double to 5 percent in the next three years. By comparison, many foundations/endowments have 50 percent of their portfolios in alternative investments, while pension plans typically hold 20-25 percent.
Alternative asset managers are accordingly adjusting their business models to enable success in serving retail, a newer investor focus for most. Past institutional focus enabled low barriers to entry, supporting boutique formation. However, the newer retail investment flows favor the resources and experience of leading asset managers. A few reasons why? Retail focus relies upon superior distribution strategies, with innovative structures for suitable retail investment solutions—including language and communications oriented to serve the very different retail investor.
Education of retail investors as well as their advisors is also key to high quality approaches. Preeminent alternatives firms such as Brookfield, KKR, and Blackstone are launching branded education centers to overall bridge the knowledge gap and enhance the value proposition of well-formulated alternative investing for retail investors and their advisors.
“Retail leading” is a distinct change for the asset management industry. Historically standards and business approach were set at the institutional level and later streamlined to retail. This paradigm is now reversing itself in favor of retail leading institutional in both asset flows and innovation.
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