Hedging for a New Era: Traditional Asset Managers and Alts Specialists Combine

It’s not much of a secret anymore. Once perceived as the province of only sophisticated institutions and the ultra-wealthy, alternative investments — or “Alts” — have fully captured the attention of affluent mainstream investors. There is a blurring of the lines between traditional assets and the continually burgeoning Alts market, and the impacts on the wealth management landscape continue to unfold. One notable aspect of this transformation is the growing number of partnerships and mergers between traditional asset managers and alternative investment specialists.

The logic driving these deals is straightforward. Traditional asset managers are eyeing the profitable experiences of alternative managers in catering to the ultra-wealthy — and are eager to replicate that success with mass affluent and retail investors. For alternative specialists, the allure of these partnerships lies in gaining access to the extensive distribution networks and deep relationships with financial advisors that traditional managers have built over the years.

What these moves also indicate is that alternatives are quickly becoming another form of table stakes for advisors. Each new and existing client is increasingly likely to be interested in understanding the various types of alternatives, their potential benefits and risks, and how to incorporate them into a diversified portfolio. As an advisor, keeping up with this continually shifting landscape is fundamentally important.

Case in Point: The Capital Group and KKR Partnership

In May, 2024, Capital Group ($2.6 trillion AUM) and KKR ($500 billion AUM) formed a strategic partnership to make “hybrid public-private markets investment solutions available to investors across multiple asset classes, geographies and channels.” The arrangement will attempt to synergize Capital Group’s active management and long-term investment approach with the private market expertise of KKR. The initial product offerings are expected to launch in 2025 and are slated to be public-private fixed income strategies “designed for financial professionals and their clients.”

At the time, Capital Group President and CEO Mike Gitlin provided some insight into the decision-making process: “Capital has been researching the broad alternatives market for the past two years and considered whether to buy, build or partner. Buying would disrupt our culture, building could distract our investment professionals, so partnering with a subject-matter expert to deliver a holistic investment solution for our clients was the best course of action.” The partnership expects to evolve and expand into additional asset classes, so advisors may eventually gain access to a broader range of innovative products that cater to diverse client needs and risk profiles.

Other deals that have been forged in the past few years include:

• BlackRock’s $12.5bn acquisition of Global Infrastructure Partners, an infrastructure manager with more than $100bn of assets under management, in January 2024.

• Alliance Bernstein’s 2022 acquisition of CarVal Investors, who specialize in distressed credit, renewable energy infrastructure, specialty finance and transportation investments.

• Franklin Resources’ acquisition of secondary private equity and co-investment fund Lexington Partners in 2022.

• T. Rowe Price’s acquisition of alternative credit provider, Oak Hill Advisors, in 2021.

An Industry Growth Story

Following the 2008 Global Financial Crisis, investors faced low-yielding fixed income investment choices, which pushed them to seek out higher returns elsewhere. Alternative investments, such as private equity, real assets (e.g., infrastructure, real estate, etc.), and hedge funds offered the potential for outsized returns relative to traditional asset classes — and, indeed, the industry attracted substantial investment. By 2011, alternative assets AUM were already a substantial $6.5 trillion. Today, that figure has exploded to a staggering $22 trillion, accounting for 15% of global AUM. This dramatic growth vividly illustrates the ever-growing importance of Alts in modern portfolios — and suggests that the term "alternative" may no longer accurately describe the importance of these less-conventional, but now commonplace strategies in today’s investment world.

As Alts take their place in the mainstream, advisors must now stay fully informed on a much wider array of strategies and investment structures in order to competently advise clients. The proliferation of new Alt investment vehicles, platforms, and partnerships demand vigilance. It is relatively easy to talk about the low-correlated (or aspirationally non-correlated) potential of many alternative investments — and why that makes them attractive for enhancing diversification. But clients deserve to understand the detailed benefits and risks associated with alternatives, particularly around topics like illiquidity, long investment horizons, complex or opaque trading strategies, and distinctive fee structures or layers of fees.

There is No Alternative: (CIMA®) Certification

For financial advisors seeking a truly comprehensive mastery of alternative investments, Investments & Wealth Institute’s Certified Investment Management Analyst (CIMA) certification offers a world-class curriculum. The CIMA program’s learning objectives are designed to sharpen expertise in this evolving asset class and provide advisors with the sophisticated knowledge and tools necessary to guide their clients effectively.

The CIMA certification program covers a spectrum of alternative assets, from private equity and private debt, to infrastructure, digital assets, and more. Critical differences between traditional and alternatives are explained in detail, including the aforementioned diversification benefits — due to their typically lower correlation with traditional equity and fixed income markets. But, advisors also learn advanced techniques for evaluating these assets beyond simple return metrics, including performance measurement methodologies such as internal rate of return (IRR) and terminal value. Concepts such as risk-adjusted returns, illiquidity premiums, and downside risk become integral to a CIMA certified professional’s skill set.

Moreover, CIMA certification ensures that advisors are well-versed in how to incorporate alternatives into customized portfolios that can successfully weather various market conditions. Advisors are trained to assess how much exposure to alternatives is appropriate based on a client's specific objectives and risk tolerance. Importantly, the certification teaches both governance and fiduciary responsibilities of managing alternative investments, ensuring that advisors are not only knowledgeable, but also able to prudently and ethically characterize the complexities these Alt assets present.

Alternatives are Standard: Are You Prepared?

While strategic partnerships between traditional asset managers and alternative specialists bode well for expanding the availability of alternatives to advisors and their clients, the corollary is that the advisor’s responsibility for having fundamental competencies in Alts will only continue to grow. Those who can expertly navigate this complex landscape, and transparently communicate the advantages and trade-offs incorporated in these strategies to their clients, will stand out in the crowded wealth management industry.

As the alternative investment landscape evolves from a niche sector into a mainstream component of diversified portfolios, the Investments & Wealth Institute is fully committed to providing advisors who embrace this shift with the education and credentials necessary to excel. Beyond the CIMA certification, our Award-Winning Investments and Wealth Academy features the Private Markets for Advisors certificate program, designed specifically to help advisors understand and integrate private market investments into client portfolios to reach the objectives of their financial plan​. The Academy also offers several short courses on Alts, including “How Alternatives Can Help you Stand out from your Competitors and Ways to Incorporate them into your Practice,” “Why Advisors Plan to Make Alternatives a Bigger Part of their Portfolios and How to Accomplish It,” and “Institutional Quality Private Portfolios for Accredited Investors.”

By staying informed and leveraging the educational resources provided by the Investments & Wealth Institute, financial professionals can continue to deliver exceptional value and remain competitive in an increasingly sophisticated Alts marketplace.

Further Professional Development: Focus on Alts Series, New York (October 23, 2024) and Los Angeles (November 14, 2024).

If you are looking to quickly develop more in-depth knowledge of the Alts landscape and offerings, please consider joining us at one of our upcoming Focus on Alts Series events. These advanced workshops will feature seasoned experts illuminating the intricate world of alternative investments. You will gain practical insights into cutting-edge strategies, risk management techniques, and emerging trends in alternative assets — from private equity to hedge funds, real estate, and beyond. These workshops will equip you with the knowledge and tools needed to design and recommend sophisticated portfolios with confidence and precision.

Registered attendees will earn Investments & Wealth Institute Premier CE credits and, subject to approval, CFP Board CE.