Clients of wealth managers/financial advisers increase exposure to cash and alternatives

by | Sep 14, 2023

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Wealth managers, portfolio managers, financial advisors and financial planners say their clients have significantly increased their allocations to cash and alternatives in the past two years – and more plan to invest in alternatives over the next two years, according to new global research from Ortec Finance.

The global study among wealth managers and financial advisors whose organizations collectively manage approximately $750 billion, found 75% have seen clients increase their allocation into cash in the past two years taking advantage of recent rate rises, with 13% witnessing a dramatic increase. Some 23% say their clients have kept the same allocation to cash and just 2% say their clients have decreased their allocation. 

Over the past 12 months, two thirds (65%) of advisors say they’ve been investing their clients’ money into a wider range of asset classes than normal – and almost nine in 10 (88%) have been increasing their clients’ overall allocation to alternative asset classes. 

 
 

The global study by Ortec Finance, carried out among wealth managers and financial advisors in Canada, the US, the UK, Australia, Germany and Switzerland, reveals in representing their clients 79% have increased their allocation to private equity in the past 12 months, followed by 76% who have invested more in private debt and 75% who have increased their allocation to hedge funds.  

Table to show the allocation to alternatives during the past 12 months 

 Increased dramatically Increased slightly Stayed the same Decreased Don’t know 
Private equity  27% 52% 20% 1% 0% 
Venture capital 38% 34% 26% 2% 0% 
Real estate 30% 39% 27% 2% 2% 
Hedge funds 40% 35% 24% 1% 0% 
Infrastructure 30% 42% 24% 3% 1% 
Private debt 23% 53% 21% 3% 0% 

When looking at the next two years, 90% of wealth managers and financial advisors see their clients increasing their allocation to private equity, followed by 87% who see their clients increasing allocations to venture capital. Eighty-three per cent see their clients investing more in private debt and 80% in infrastructure over the next two years.  

 
 

Table to show the allocation to alternatives changing over the next two years 

 Increased dramatically Increased slightly Stayed the same Decreased Don’t know 
Private equity  30% 60% 9% 0% 1% 
Venture capital 56% 31% 12% 0% 1% 
Real estate 39% 28% 30% 2% 1% 
Hedge funds 38% 41% 19% 0% 2% 
Infrastructure 41% 39% 19% 0% 1% 
Private debt 19% 64% 17% 0% 0% 

The top reasons given by wealth managers and financial advisors as to why they are increasing their clients allocation to alternatives is that they have performed well in recent years and have developed a more robust track record (cited by 68% of survey respondents) as well as there being more opportunities to invest in these asset classes (66%). Advisors also believe they can offer attractive returns, with lower correlation to equities markets (47%). 

Contributions from high-net-worth individuals, wealth managers and retail investors currently account for around 5%, or roughly $750 billion** of the alternative asset management industry’s global AUM. Given these predicted increases in allocations, over half (55%) of advisors believe this will reach 10% by 2025 or 2026. Almost one in 10 (8%) believe this will be as soon as 2023, and a fifth (20%) believe this will happen in 2024. 17% believe this will happen sometime between 2027 and 2029. 

 
 

Ronald Janssen, Managing Director Goals-Based Planning at Ortec Finance said: “Our research shows a significant move into cash and alternatives over recent years, with more clients set to increase their allocations into alternatives in the near future. This is quite a significant shift in clients’ investment strategies so it’s essential that advisors have the right tools in place to effectively review investments to ensure they are on track to achieve their personal goals. This can take up a significant amount of time so investing in the best, scalable technology is essential, to enable advisors to effectively manage more clients and deliver more value with the approach of Goals-Based Investing.” 

Ortec Finance provides wealth managers and financial advisors with scalable solutions that enable them to manage clients more efficiently and deliver more value to those clients. Its OPAL Planning tool supports banks, advisors and wealth management firms to translate client’s financial goals into an optimal investment strategy – providing forward-looking insights into whether clients are on-track regarding their investment objectives. Together with a fully integrated cash flow planning tool for a holistic view on the client situation, the OPAL Planning tool addresses both income and investment risk. Find out more: https://www.ortecfinance.com/en/insights/product/opal 

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