Key Takeaways
- • High-net-worth investors (those with $5 million or more in investable assets) have increased alternative investment allocations from 7.7% in 2020 to 9.1% on average, with advisors expecting further growth to 9.6% by 2024, according to Cerulli research data.
- • Portfolio diversification and volatility reduction (50% of cited reasons) and new growth opportunities (50%) are the primary drivers motivating HNW allocation increases to alternatives, as traditional public equities and fixed-income returns disappoint.
- • Private equity leads expansion intentions among HNW practices, with 50% of advisors planning increased allocations, followed by private real estate (45%) and direct investments/co-investing (32%) over the next two years.
- • Alternative manager search and selection services have become a core HNW practice offering, growing from 50% adoption in 2016 to 67% in 2022, reflecting the maturation of private markets and sustained client demand.
- • A substantial majority (94% or more) of surveyed HNW practices expect to maintain or grow positions across all alternative investment types, with hedge funds as the sole exception to this broadly positive outlook.
Summary
Alternative investments have become increasingly central to high-net-worth portfolio construction, driven by both structural market conditions and the maturation of private market opportunities. HNW investors—those with $5 million or more in investable assets—have materially increased their exposure to alternative strategies, with allocations rising from 7.7% of client portfolios in 2020 to an average of 9.1% by 2022. Industry advisors project this allocation will reach 9.6% by 2024, signaling continued appetite for diversification beyond traditional public markets.
The motivation behind this shift reflects two equally weighted concerns: portfolio diversification and volatility mitigation account for 50% of allocation drivers, while the pursuit of new growth opportunities comprises the remaining 50%. This dual imperative stems partly from advisor dissatisfaction with public equity and fixed-income returns in recent market cycles. By expanding into private capital and credit markets, advisors argue that HNW clients achieve more robust diversification and position themselves to capture returns unavailable in public markets while managing systematic risk more effectively.
The composition of alternative allocations is shifting notably toward private markets. Private equity leads expansion plans among HNW practices, with 50% of advisors and executives intending to increase allocations over the next two years, followed by private real estate (45%) and direct investments or co-investing opportunities (32%). This preference reflects broader confidence in private market valuations and illiquidity premiums relative to public alternatives. Notably, hedge funds remain the outlier—a vast majority of surveyed HNW practices (94% or more) expect to maintain or grow positions in nearly all alternative strategies except hedge funds, indicating a potential pivot away from traditional hedge fund allocations.
Service offerings have evolved in parallel with client demand. Alternative manager search and selection has transitioned from a secondary service to a primary offering at HNW practices, expanding from 50% adoption in 2016 to 67% by 2022. This shift underscores the growing operational complexity and specialization required to navigate increasingly diverse alternative manager universes, particularly in private equity and direct lending. As private markets continue to mature and regulatory clarity evolves, HNW practices expect this trend toward specialized alternative management services to persist, cementing alternatives as a structural component of wealth management.
The motivation behind this shift reflects two equally weighted concerns: portfolio diversification and volatility mitigation account for 50% of allocation drivers, while the pursuit of new growth opportunities comprises the remaining 50%. This dual imperative stems partly from advisor dissatisfaction with public equity and fixed-income returns in recent market cycles. By expanding into private capital and credit markets, advisors argue that HNW clients achieve more robust diversification and position themselves to capture returns unavailable in public markets while managing systematic risk more effectively.
The composition of alternative allocations is shifting notably toward private markets. Private equity leads expansion plans among HNW practices, with 50% of advisors and executives intending to increase allocations over the next two years, followed by private real estate (45%) and direct investments or co-investing opportunities (32%). This preference reflects broader confidence in private market valuations and illiquidity premiums relative to public alternatives. Notably, hedge funds remain the outlier—a vast majority of surveyed HNW practices (94% or more) expect to maintain or grow positions in nearly all alternative strategies except hedge funds, indicating a potential pivot away from traditional hedge fund allocations.
Service offerings have evolved in parallel with client demand. Alternative manager search and selection has transitioned from a secondary service to a primary offering at HNW practices, expanding from 50% adoption in 2016 to 67% by 2022. This shift underscores the growing operational complexity and specialization required to navigate increasingly diverse alternative manager universes, particularly in private equity and direct lending. As private markets continue to mature and regulatory clarity evolves, HNW practices expect this trend toward specialized alternative management services to persist, cementing alternatives as a structural component of wealth management.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.