Retail investors warned on piling into risky alternative products
Retail investors must be wary as a wave of alternative investment products comes to market because many carry high fees, lack diversification and offer poor quality investments, asset managers have warned.
Big institutional investors have racked up enviable returns in recent years with investments in alternatives, the catch all term for investments that are not publicly traded, such as private equity, private credit and real estate.
But the asset class had been largely out of reach of individuals because it requires large minimum investments and long lock up periods.
“The products for retail are lacking . . . We haven’t democratised access at a price point that makes sense,” Michelle Seitz, chief executive of Russell Investments, told the FT’s Future of Asset Management North America conference in New York last week.
Retail investors may also be less clear about the additional risks they are taking on in terms of volatility and inability to access their cash, she said. “The benefit of a big institution is you have a CIO who is crystal clear about what their liability is. We haven’t provided all those tools . . . to the end individual,” she said.
Retail investors are vital to the sector’s growth because many institutional clients are already heavily invested in alternative products and some are seeking to reduce their exposure. Many institutions already have around 30-50 per cent of portfolios in alts, partly owing to years of strong returns and partly because of recent falls in public market valuations.
The average retail investor has just 2 per cent of their portfolio in alternatives, according to a McKinsey study that projects the figure could rise to 5 per cent in the next three years, The consultancy estimates could bring $500bn and $1.3tn in new capital to alternatives.
Retail investors will be entering the market at a time when the recent bear market in public equity and bonds will probably push down the value of at least some alternative investments.
This story originally appeared on: Financial Times - Author:Harriet Agnew
