As alternative products continue steady growth in the mutual funds industry, SEI has released The Retail Alternatives Phenomenon: What Enterprising Private Fund Managers Need to Know. It explores the opportunities that the increase of alternative funds presents to private fund managers along with the challenges of moving the products from institutional to retail markets.
According to the study, assets in the U.S. alternative funds have more than doubled since 2008 with approximately 75 percent of financial advisors currently use alternative strategies. In the past year alone, nearly three-quarters of advisors have increased their allocation to alternative assets. The increase in financial advisors use of alternatives seems to match the increased demand for alternative investments by investors, where 53 percent of investors showed their interest in alternative investing strategies. The SEI study includes an analysis from McKinsey & Company, which predicts that alternative funds’ share of the U.S. mutual fund market will double from 2010 to 2015 and account for nearly 25 percent of all retail revenue by the end of 2015.
With mutual funds being the main avenue to package alternative strategies, various retirement plans like the defined contribution, defined benefit, and individual retirement accounts have been an entry point for private fund managers for retail alternative funds.
Challenges presented in the study includes private fund managers dealing with cultural and regulatory differences in the retail market that requires specialized distribution expertise, substantial resources required for education, potentially delayed profitability and a new infrastructure to navigate through the complex retail alternative channels. Another hurdle for private managers is to educate themselves and their investors on how alternative strategies work and how it fit into the investors’ overall portfolio.