Alternative Investments for Retail Investors – Industry readiness

Background

There are over 17,200 private businesses in the United States with annual revenues exceeding $100 million, compared to fewer than 4,060 public companies of the same size. Investors are increasingly exploring opportunities to invest in this sector. While investing in private companies was previously limited mainly to large institutional investors, qualified individuals and family offices are now participating more frequently in private markets.

Additionally, the traditional 60/40 portfolio, where 60% is invested in stocks and 40% in bonds, is a common starting point for basic portfolios. The allocation of assets is typically tailored to suit an investor's time horizon, risk tolerance, and financial objectives. In recent years, factors that contributed to the success of the 60/40 portfolio have faced challenges, including post pandemic inflation uncertainty and current fiscal, trade, and policy changes.

This necessitates reconsidering portfolio construction strategies. Enhancing portfolio resilience may require exploring alternative investments beyond traditional stock and bond allocations. Alternative investments typically include private equity, private credit, real estate, infrastructure, natural resources, and hedge funds.

The demand for alternative investments is increasing

Alternative investments are private investments and subject to fewer regulations compared to public investments. Additionally, alternatives are less liquid because the funds and the underlying assets are not publicly traded. These investments require time for their value-creation strategies to materialize, often necessitating a multi-year investment horizon.

Key industry trends making alternatives investment more accessible includes Regulators removing barriers to democratize access for retail investors (e.g., European long-term investment fund 2.0, LTAF - Long-Term Asset Fund), asset managers simplifying alternative investing through familiar investment strategies (e.g., model portfolios and hybrid funds) and wealth management firms are launching new platforms for retail clients.

Multiple studies conducted by the industry leaders indicate that demand for alternatives is expected to continue increasing.

• Preqin projects that assets under management (AUM) for alternatives could reach $29.2 trillion by 2029. The AUM for alternatives has increased significantly over the last decade, from approximately $7.2 trillion in 2014 to an estimated $18.2 trillion in 2024.
• A CAIS and Mercer survey found that 92% of financial advisors use alternative investments in client portfolios, with 91% planning to boost allocations in the next two years. Currently, 50% of advisors allocate over 10% of client portfolios to alternatives, and 76% allocate at least 5%.
• Cerulli Associates predicts that alternative investment managers will see individual clients account for 23% of their assets by 2028, up from ~13% in 2024. Additionally, 43% of managers anticipate Defined Contribution plans to allocate over 5% to alternative assets within the next five years.
• A study from Bank of America in 2024 found that younger high-net-worth investors have allocated 17% of their investment portfolios to alternative investments, compared to 5% allocated by older investors. Additionally, 93% of younger investors plan to increase their investments in alternatives in the coming years.
• The HSBC – Affluent Investor Snapshot 2025 reports that 29% of affluent investors plan to own private market funds (equity or credit) within the next 12 months. Around half of affluent investors expect to have alternative investments within a year, which is twice the current level of ownership.

Alternatives offering value proposition for select firms

The leading firms have strengthened its alternative investment offering and select examples are discussed below.

• Charles Schwab, in collaboration with iCapital, has introduced its alternative investments platform for retail clients possessing over $5 million in household assets within Schwab accounts. Schwab’s alternatives platform for retail investors presently features third-party funds that allocate capital to private equity, hedge funds, private credit, and private real estate. The firm anticipates expanding the range of asset classes to include exchange funds and broadening the selection of funds in each investment category. Retail clients utilizing the new platform have the option to engage with Schwab alternative investment consultants, along with their current Schwab financial consultants, wealth consultants, or wealth advisors.
• Fidelity has introduced its proprietary research on alternative investments for advisors. The research includes notes on third-party registered alternative investment strategies and is accessible through Wealthscape platform. Advisors can now use the new alts research portal to review options such as private credit, private real assets, and private equity funds, enabling comparisons of different alternative investment strategies.
• LPL Financial has introduced LPL Alts Connect, a platform that allows advisors to research, purchase, and manage alternative investments. The platform offers digital tools like prequalification, e-signature, and direct sales kit delivery. Alts Connect investment management is supported by SUBSCRIBE, which digitizes alternative investment subscription and reporting processes.
• The Bank of New York Mellon introduced an alternative investment platform for wealth intermediaries and financial advisors, known as Alts Bridge. This platform allows users access to a comprehensive range of alternative asset managers, including KKR, Apollo, Blue Owl Capital, Franklin Templeton, Coller Capital, and Partners Group. Initially available to BNY Pershing clients, the platform is slated to extend its services to U.S.-based registered investment advisors (RIAs) and independent broker-dealers.
• Morningstar and iCapital partnered to provide Morningstar Advisor Workstation users with seamless access to alternative investments and analytics. The workstation will utilize iCapital’s analytics to produce risk scores for portfolios including private credit, private equity, private real estate, structured notes, and hedge funds. This integration aims to streamline the vetting and access of these investments within an advisor's workflow.
• BlackRock has launched an innovative customizable public-private model portfolio within a Unified Managed Account (UMA). These models are empowered by GeoWealth UMA technology and supported by iCapital’s advanced technological capabilities. This launch represents the first instance where a customizable model portfolio, encompassing both private and public market assets, is available through a UMA platform, featuring efficient administration and custodial integration.
• Edward Jones is expanding its offerings to include alternative investments for eligible clients within Edward Jones Generations, the firm recently launched private client service tailored for high-net-worth U.S. investors. The firm intends to gradually make these investments available to a broader market. The Edward Jones Generations service provides financial products, solutions, and personalized experiences for clients with investable assets of $10 million or more. Financial advisors serving Edward Jones Generations clients will also have access to CAIS’s on-demand learning platform, CAIS IQ, as well as CAIS Live in-person education events.
• Vanguard, Blackstone, and Wellington Management are introducing a new fund that will invest in public equities, bonds, and private markets. This initiative aims to expand private-market offerings to retail clients. According to regulatory filings, the firms plan to establish an interval fund, allowing investors to make quarterly withdrawals limited to between 5% and 25% of the fund's net asset value.
• Empower, a leading workplace retirement plan provider, is making private market investing more accessible. They announced a partnership with private investment fund managers to offer investments through collective investment trusts, typically available only to qualified retirement plans. Partner firms include Apollo, Franklin Templeton, Goldman Sachs, Neuberger Berman, PIMCO, Partners Group, and Sagard.
• BlackRock is poised to incorporate private assets into its retirement plans as it ventures further into alternative investments. This initiative represents a notable transformation in the structuring of retirement products, integrating traditionally illiquid and high-fee private market investments into conventional retirement portfolios. The firm will launch a target-date fund, which includes stocks, bonds, and other assets like private equity and credit, in early 2026.

Path Forward: Integrating Traditional and Alternative Investments

Wealth management firms must build new or upgrade its existing capabilities to make alternative assets accessible to retail investors. A unified platform covering investment research, portfolio modelling, customizable strategies, portfolio management, execution, and post-investment (performance reporting, tax management, client support) will give advisors an all-in-one solution for alternative investments. Platform features will differ depending on each firm's value proposition; however, key capabilities are outlined below for reference. Firms must differentiate themselves through their ability to tailor experiences and investment strategies, automate workflows for advisors and, and deliver outstanding customer service.

Key capabilities

• Advisors must have access to a curated marketplace offering alternative investment strategies across various asset classes (Private equity, Private debt, hedge fund) at lower investment minimums.
• Equip the advisors with robust tools for alternative fund screening and investment strategies customization to build personalized portfolios that align with client’s risk profiles and goals.
• Include a portfolio builder that enables advisors to upload clients’ existing traditional portfolios and illustrate the potential impact of integrating alternatives into overall holdings.
• Advisors must be able to view consolidated client portfolios encompassing both public and private investments. Firms must strengthen its integration with downstream reporting and portfolio management systems to enable advisors to view their clients’ total wealth picture.
• Implement an accounts dashboard presenting both individual and consolidated client holdings, alongside historic portfolio performance reports.
• Build sub-account portfolio accounting capability with UMA (Unified managed account) and sleeving, allowing both public and private assets in one portfolio.
• Develop centralized data hub and implement AI-powered analytics to enhance transparency and streamline alternative portfolio management. Leveraging real-time data analytics increases investor confidence by delivering actionable and timely insights.
• Harness the potential of AI powered tools to ingest documents and financial statement information to provide automated, consolidated reporting across an entire alternatives’ portfolio.
• Create a tailored education programs to address knowledge gaps, ensuring that investors have a clear understanding of the benefits and risks associated with alternatives. Firms can use blogs, podcasts, short videos, and gamified learning to boost retail investor knowledge and confidence.
• Integrated compliance features and automated regulatory reporting for alternative investments.

Conclusion

Firms must provide unique value propositions for alternative investments tailored to different client segments. Firms must evaluate new business models that promote partnerships between traditional and alternative investment managers to access new investment opportunities and use existing distribution channels. Leveraging advanced technology like artificial intelligence can optimize advisor workflows and equip advisors and clients with digital tools to enhance efficiency, effectiveness, and customer experience.