Eric Satz is Founder and CEO of AltoIRA, which provides investment access with retirement savings to private market assets for all.
Investors have faced highly volatile and stressful conditions to start 2025, with considerable stock market losses. The ongoing challenges could encourage investors to consider a different approach for allocating their retirement dollars, including alternative assets.
In 2024, demand for alternative investments grew dramatically from retail and institutional investors looking to bolster returns and improve portfolio diversification. Private market asset managers are now pursuing the retail channel, so increased supply and demand are meeting in the middle. In addition, new technology platforms opened access to private markets that previously were only available to the very wealthy.
I expect these trends to continue and accelerate in the coming years due to increasing investor education, ongoing stock market uncertainty and changing regulatory conditions.
Increased Usage Of Alternatives In Retirement Plans
For the typical retail investor, most of their portfolio is in a retirement plan such as a 401(k) or individual retirement account (IRA). Most brokers and banks only allow IRA investing in traditional market assets like stocks, bonds and mutual funds.
However, investors can use a self-directed IRA custodian to invest their retirement savings in a variety of alternative asset classes, such as private equity, private credit and venture capital. Self-directed IRAs also allow direct investments in cryptocurrencies, which had a moment given the record prices reached by certain coins early this year.
I expect the industry to raise more awareness of the different ways to access alternatives in an investment portfolio, including through self-directed IRAs. These accounts can be opened online in minutes. Ultimately, investors want control over their retirement investments, and we’re likely going to see an increase in investors learning how to do so through self-directed IRAs in the years ahead.
Traditional Industry Players Will Become More Active In The Alts Space
I expect more traditional industry players, including large retail brokers and financial advisors, to engage with the alts space over the next year as they respond to investor demand. For example, numerous brokers launched crypto exchange-traded funds (ETFs) in 2024, such as Fidelity, BlackRock and Invesco.
Financial advisors are also constantly seeking ways to improve asset allocation and portfolio results for their clients. A KKR study found that a portfolio with an allocation of 40% stocks, 30% bonds and 30% alts had a higher annual return than the standard 60/40 stock and bond portfolio from 1927 to 2021.
Financial advisors will shift their recommendations to match new research, but they need help doing so. Brokers and advisors who are new to alts could lean on those specializing in this space, such as the recent partnership between the Chartered Alternative Investment Analyst (CAIA) Association and the Financial Planning Association (FPA), to share educational materials.
An Improved Digital Experience To Empower New Investors
In the past, the alts sector was mostly a manual process and didn’t leverage technology; think pen and paper and fax machines. While this approach made sense when these investments were only for a few high-net-worth individuals, it no longer works for investors in the digital era.
Investors need a uniform platform where they can educate themselves, have access to a range of choices, evaluate decisions and then seamlessly execute investments. Ideally, platforms should be backed by human support. Investors are used to these digital platforms and tools for traditional public market-based assets and will expect them for alts, too.
That same technology and digital experience should be easily accessed by financial advisors so they feel comfortable referring it to clients. Ultimately, the companies that engage investors with a user-friendly digital experience are the ones that will be better positioned to grow.
Hope For Change In A Challenging Regulatory Landscape
Over the last few years, the regulatory landscape has become difficult for fund managers, financial advisors and investors to navigate. Government agencies are targeting the industry with more scrutiny and enforcement. That still holds for the time being.
While firms seek opportunities to grow and innovate in the alternative investment space, compliance must remain a priority. Things have been slowly moving in a different direction for alts, such as the U.S. Securities and Exchange Commission (SEC) approving crypto ETFs, but barriers remain.
In addition, if the Fed resumes decreasing interest rates, investor confidence may increase, specifically for private equity and venture capital, leading to increased investment demand. This could create further political pressure from investors to push the regulatory landscape in a different direction.
A Bright Future For Investing
I believe demand for alts will continue to grow as investors realize the potential diversification and investment value of these assets. The industry will adopt more user-friendly wealth tech platforms, both for individual investors and their advisors. While regulatory challenges remain, I am cautiously optimistic that the evolving policy landscape may create a more supportive environment for alternative investments.
The coming years should continue expanding access to investment opportunities that were once limited to the ultra-wealthy. Investors exploring alternatives can work with their financial advisors to determine how these options might fit into their long-term retirement planning.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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