How Tech Innovation Can Connect Next-Gen Investors with Alternatives
Millennials’ wealth is expected to increase fivefold by the end of this decade. In 2030, Millennials will likely control approximately $20 trillion in assets—up from the $4.5 trillion they had in 2018, according to U.S. Census Bureau data and Ribbit Capital analysis cited by CB Insights.
The drivers of this phenomenon include the looming transfer of wealth from generation to generation, as well as organic savings and compounded interest from market growth. And the good news for alternative asset managers is that Millennials are open to alternative investments.
According to a 2017 survey by Natixis Investment Managers, three-quarters of Millennials with at least $100,000 in investable assets are willing to invest in assets other than stocks and bonds, and at that time, 43% of Millennials surveyed (almost half) stated they already invested in alternatives.
However, the Natixis survey also found that 62% of Millennials believe alternative investments are riskier than their traditional counterparts, suggesting the majority of Millennials would benefit from data and analysis that demonstrate how alternative assets and strategies can protect their portfolios and help them achieve their goals.
But the availability of real-time data on alternative asset managers and their strategies has historically not been readily available to the investment community. The alternative investment universe is quite fragmented, so the different sources of data, such as hedge fund managers, tend to operate in their own silos, and don’t share information with other alternative investment managers. Data on alternative managers is also expensive for investors to access, since database vendors typically charge high fees, and other providers, such as prime brokers and investment banks, are conflicted by the nature of their business models.
In addition to the lack of data necessary for making well-informed investment decisions, alternative assets and funds have typically only been available to the wealthiest investors due to their illiquid nature and requirements for high minimums. This explains why, among the more than 70% of all U.S. savings currently held in retirement accounts, only 2% to 5% of those savings are invested in alternatives, as per the Investment Company Institute.
However, the ongoing development of, and enhancements to, innovative financial technology (fintech) solutions has made alternative investments more accessible to younger, and retail, investors.
For one thing, some digital alternative investment platforms which cut out the middle man, and allow financial advisors and their clients to directly invest in alternative asset managers’ funds, can negotiate directly with the asset managers on their platforms to lower minimums and obtain institutional pricing for retail investors.
Other digital alternative portals can make alternative investments more accessible to the next generation of investors by utilizing the latest in cutting-edge technology to add transparency to the alts universe. There has never before been a digital platform which has consolidated performance data and other information about all types of alternative asset managers within a single portal. Furthermore, if such a platform were to offer social media features for digitally engaging alternative asset managers, in order to set up digital or in-person meetings for learning more about their funds and strategies, it would make alternatives even more accessible (and transparent) to the next generation of investors, who expect to be able to handle far more than their parents and grandparents digitally. (In fact, recent research has found that 89% of Millennials expect companies to offer a seamless digital experience.)
This is the solution we have created. And it can connect more Millennials and Generation-Z investors to alternatives.