Alternative investments are becoming a key component of wealth management portfolios, with the market projected to grow by 17 percent annually through 2029, reaching over $3 trillion—more than double its current size of approximately $1.4 trillion.
A report from Fuse Research Network attributes this growth to strong investment returns, which are pushing more clients past the $1 million threshold required to qualify as accredited investors. According to InvestmentNews, this expanded eligibility grants them access to a broader range of alternative investment products. In response, asset managers are introducing new funds, including liquid mutual funds, exchange-traded funds (ETFs), and semi-liquid 40-Act products.
Financial advisors play a significant role in distributing semi-liquid alternatives, such as interval funds, nontraded business development companies, nontraded real estate investment trusts, and tender offer funds. Loren Fox, director of research at Fuse Research Network, noted that advisors facilitate 30 to 40 percent of semi-liquid alternative sales. InvestmentNews reports that the structure of these products allows for occasional partial redemptions, making them a more accessible transition from traditional mutual funds.
In contrast, while most liquid alternatives, including mutual funds and ETFs, are also distributed through advisors, only about 7 percent of illiquid alternatives—such as hedge funds—flow through advisors. However, that figure is expected to rise to 9 percent within the next four years.
Major asset managers, including BlackRock, Franklin Templeton, and Thornburg, are developing alternative products tailored for wealth management. According to the Fuse report, these firms are drawn to alternatives due to their higher margins and lower turnover compared to mutual funds and ETFs. InvestmentNews also reports that even longstanding industry leaders in alternatives, such as Blackstone, KKR, and Apollo, are increasing their focus on financial advisors.
As demand for alternative investments grows, firms are investing in advisor education to enhance client discussions about portfolio allocations to alternative assets, which typically account for around 5 percent of a client's holdings. Fox emphasized that alternative investments are primarily sold, not bought, in wealth management. Only 15 percent of advisors report that client requests drive their adoption of alternatives. Instead, advisors cite diversification, low correlation to the stock market, potential for upside, and risk mitigation as the primary reasons for incorporating alternatives.
Financial Advisor Transitions consults advisors nationwide to explore employment transition options and to preserve and protect their practice in any transition that they make.
