New Year, New Investments

As we step into the new year of 2024, many of us are feeling cautiously optimistic after the tumultuous events of 2023. With the shadow of a potential US recession fading, and a clearer outlook on interest rates, the market is presenting new opportunities for investors to explore in the upcoming year.

Renewed Interest in Alternative Investments

Wealth management in 2024 is witnessing a resurgence of interest in alternative investments. The world of alternatives is vast and varied, ranging from art to real estate to private equity. While this diversity can pose challenges for wealth managers, the increasing accessibility of private markets and alternative assets has captured the curiosity of clients. According to Capgemini’s “2023 World Wealth Report,” wealth managers are advised to focus more on alternative investments to cater to evolving client preferences in a competitive market.

“Most clients with a long-term investment horizon can withstand about 30% exposure to alternatives,” stated Daniel Scansaroli, head of portfolio strategy at UBS, in an interview with Barron’s.

Five Reasons to Consider Alternatives

1. Diversification Matters

Creating a diversified portfolio is key to resilience, and alternatives offer a unique opportunity to enhance diversification. As clients seek better returns and explore new investment avenues, alternatives can provide them with previously unconsidered options.

2. Massive Potential

Despite the growing interest, alternatives accounted for only 14.5% of client assets in 2022. With just one in three wealth management executives planning to add more alternative products to their portfolios, there is significant room for growth. Wealthy individuals looking to emulate endowments and family offices that allocate around 60% of their assets to alternatives further underlines the potential of this sector.

3. Wealth ≠ Financial Savvy

Clients may have the funds to invest but lack the knowledge to do so effectively. This is where wealth managers play a crucial role in identifying market outliers and new opportunities in the alternative investment landscape. Handling the unique intricacies, such as tax implications, associated with alternatives is a key part of a wealth manager’s responsibility.

4. Clients May Own Alternatives and Not Know It

Not all investments are immediately recognizable, and it is the role of a financial advisor to uncover hidden opportunities. From high-value collectibles like Hermes Birkin purses to art and jewelry, clients may have assets that can contribute to their portfolios without them realizing their investment potential.

5. Digital Is in Demand

While the digital asset landscape has been viewed with caution by wealth management firms due to regulatory uncertainties, investors, especially younger demographics and those in Asian markets, are increasingly inclined towards digital options. Cryptocurrencies continue to dominate the digital asset space, presenting a growing market segment for wealth managers to tap into.

Wealth managers can leverage their traditional strengths while embracing new investing trends to cater to client demands in a rapidly evolving market. Alternatives offer a wealth of opportunities for navigating market uncertainties and challenges effectively through strategic allocations.

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Disclaimer: The opinions expressed in this post are solely those of the author and should not be construed as investment advice. They do not necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images / Steven Puetzer

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