Access to alternative investments and private markets has been increasing in recent years, a trend that is expected to continue.
One of many recent indications of that came last week as Envestnet, via partnerships with asset managers BlackRock, Fidelity Investments, Franklin Templeton and State Street, began offering professionally managed model portfolios with semiliquid alternative allocations and alternative ETFs in its unified managed account platform.
Some advisors see alts as key to portfolio management. Private markets will play an increasingly central role in wealth management over the next decade as more companies remain private for longer, said Zoltan Pongracz, co-founder of Third View Private Wealth in Westport, Connecticut.
"Access to these opportunities becomes essential for clients seeking differentiated returns and meaningful diversification," he said. "Alternative investments won't be alternative anymore but rather a standard part of a portfolio for the average investor. Secondaries will be the next boom. As private markets allocations increase, so too will the need for dynamic liquidity."
Technology platforms like CAIS, lower investment minimums and more investor-friendly fund structures are also helping to make private strategies more available, said Pongracz. But this increased access is a double-edged sword, he said.
"It's more important than ever to understand how these strategies fit into a client's overall plan and just as importantly, which ones to avoid," he said.
READ MORE: Ask an Advisor: Why are alternative assets often not included in portfolios?
Private markets and alternative investments can add meaningful diversification and growth potential to a portfolio, but they demand a disciplined, almost skeptical, evaluation process, said Michael Becker, partner at Toberman Becker Wealth in St. Louis.
"These opportunities often come with unique risks, such as illiquidity, higher fees and opacity in performance data, which means they aren't suitable for everyone," he said. "When I consider these investments for a client, I focus first on ensuring the core of their portfolio — public markets — is well built and stable. Only then does it make sense to explore alternatives."
By Rob Burgess