It took more For more than 30 years alternative asset classes such as venture capital, private equity and hedge funds have been mandated portfolio allocations, but they are finally being implemented. It grew from $4.6 trillion to $13.3 trillion over the 10 years ending in 2021, and advisors now routinely recommend 10%-25% of portfolios be allocated to these asset classes.
Liquid alternative asset classes are enjoying record revenues, and B2C-friendly distribution platforms like Moonfare, Fundrise and SeedInvest are building on-ramps for the new generation of investors.
Just as these traditional options are becoming a consistent part of the modern investment portfolio, a new era of alternative assets is emerging, prompting a broader and more fragmented landscape for investment. Dozens of platforms have sprung up to sort, package and distribute everything from farmland, litigation finance and P2P lending to art, wine and collectibles.
Crypto added fuel to this trend and quickly became a mass-market asset class. Along with more established alternative classes such as venture capital and private equity, these new options give retail investors access to asset classes never seen before (like crypto) or previously limited to high-net-worth investors.
However, there is a problem in alternative assets is the lack of digital infrastructure. Traditional alternative assets like venture capital and private equity at least have ecosystems built to serve them, but the infrastructure is aging and a narrow base for institutional investors like endowments, pension funds and large family offices.
As these asset classes grow and diversify their investment bases, they will need significant upgrades to modernize the fund manager/GPN and investor/LP experience. The situation is worse for emerging alternative assets. Today, investment platforms unify their operations – sourcing, brokerage, reporting and protection – so investors can overcome fragmentation throughout their discovery, account creation, execution and reporting journey.
These asset classes require leverage, institutional capital, actively managed funds and financial advisors – and all of these are based on better data.
Let’s start with traditional options
Yes, calling alternatives “traditional” is oxymoronic, but after more than 70 years with over $13 trillion in AUM and a 10%-25% portfolio allocation, venture capital, private equity, private credit and real estate are hardly new. Types of investment.
Investment performance for “traditional alts” is even more strongly correlated with public stocks. The most persistent difference is the accredited investor requirement (only 10 percent of the US population), but Reg CF, Reg A+, and countless platforms like SeedInvest and WeFunder are opening that door.
Image Credits: F-Prime Capital
Depending on the size of these asset classes, fund managers are strategically diversifying their investor base away from institutional investors such as pension funds and endowments. Old, labor-intensive processes built on a 30-year technology stack from FIS Investran, State Street, and CITCO do not reach 100,000+ financial advisors and millions of accredited investors. What’s more, the user experience is so bad, you don’t want to rate it: PDFs, manual bank wires and clunky investor portals are the current “state of the art” here.
Image Credits: F-Prime Capital
Modernize the infrastructure for traditional alts
Fortunately, entrepreneurs are solving the problem caused by antiquated infrastructure for traditional alternative investments.
