The Retail Alts Arms Race: Winning Won’t Be Easy
The Alts Arms Race is well underway as the war for alternative investments supremacy in the retail space kicks into high gear. The days of 60/40 stock and bond portfolios are long over, as investors seek to generate long-term performance via the slew of institutional grade alternatives now available to them.
Alt firms – fueled by the seemingly endless momentum towards continued growth – are rapidly expanding into the retail channel without relent. Recent estimates from Preqin predict the asset class will double by 2027, cresting $18 trillion in AUM. Accounts from large wirehouse executives signal similar growth trajectories, which are reflected in many of their asset allocation models—with some predicting a doubling of allocations over the next five years.
Like most fast-growing sectors, distribution and brand will play a massive role in long-term success, particularly as the space gets crowded and product offerings become commoditized (which is inevitable). Thus, brand differentiation and awareness will become non-negotiable and crucial for outsized growth to emerge victorious, particularly at large firms where advisor demand for a brand (often fueled by retail investors) can largely determine the success of a fund. Add to that, the need to educate financial advisors on the nuances of alternative strategies is a real opportunity for brands to stand out in how they market themselves. This is of particular importance in a rapidly growing segment where entrants from all corners of investment management are chasing the same dollars.
And so it is; the stage is set for an arms race, the likes of which the investment management world has never seen. It’s a clash of the established and the new, all pursuing the same coveted retail dollar—and there are trillions of high-fee, long-term assets at stake. While all contenders are unique, there are three main camps:
- The Traditional Asset Managers: Household name stock and bond managers who have acquired and/or built alternative capabilities to be sold through their established wealth distribution channels.
- The Insurance-Owned Asset Managers: Highly experienced alt boutiques owned by large insurers. Until recently, their primary role was to deliver returns for the general account of their parent company. Like the traditional managers, they’re looking to use their distribution prowess to commercialize their alts offering.
- The Alt Specialists: They’re numerous; and some are multi-sector while others are highly specialized. Among this group are some of the highest pedigree institutional brands on earth, but most have yet to establish proper retail distribution networks, and many are yet to be known by financial advisors and retail investors alike.
While some will have to work harder and invest more, each manager brings strength and has opportunities to grow. That said, a challenge many (if not all) of them will face is the need to redefine their brand amongst advisors and to do something they’ve perhaps never done—marketing and advertising:
- The traditional asset managers will need to redefine themselves as more sophisticated. While they manage trillions in traditional stock and bond investments, they might not be the obvious or most credible choice for advisors seeking an alternative manager and product. Perception also needs to shift amongst the highly influential home office decision makers, who determine what products get shelf space. Without a brand and an appropriate sales and marketing push, they aren’t likely to get the traction they will need on large and lucrative wealth platforms.
- The insurance-owned multi-boutique asset managers have credibility as alts experts since they have the track record, as well as the institutional quality investment capabilities, built over decades for general accounts and institutions. This positions them uniquely among all peers since they are asset owners, as well as asset managers—they eat their own cooking. However, these brands have an exacerbated brand equity issue, since most go to market under multiple boutique names that are loosely affiliated with the large distributors with whom financial advisors typically do business. Most firms of this type are trying to build their retail distribution brand; and many with limited success. The multi-boutique model that many asset managers employ is a brand challenge since each boutique’s brand needs to be known to make the sale.
- The independent alt specialists have the undeniable investment expertise and credibility. Simply put; they don’t need to prove that they’re capable. Many also have the institutional scale and the access to create private deals that the other two do not. As impressive as their investment acumen might be, their retail distribution capabilities are not yet mature, and are, in many cases, non-existent and/or through third parties. Long-term ownership of distribution channels along with more prominent brand equity will be necessary for success for this group. Additionally, becoming known for expertise should be a focus of the specialist providers to stand out.
In all three cases, there is a very large brand problem to solve, and each group must approach their brand challenge differently; but all must do so methodically using three core factors:
- Narrative – What you say: Each manager must work obsessively to determine what makes their offering unique. The long-term alts arena will not have room for copycats. There are simply too many firms chasing the same sale, so standing out is non-negotiable for long-term victory.
- Audience – Who you say it to: The smartest distribution organizations are the ones that are very good at determining what the target market is for each of their offerings. Therefore, managers must continue to invest in analytics to identify targets while also connecting that capability to their marketing technology stack. In the case of the independent alt specialists, many have yet to even hire a retail marketing team and are significantly behind. This should be the utmost priority to distribute at scale.
- Frequency – How often you say it: Standing out is meaningless if your clients don’t know who you are. Without frequency of message, you can never achieve your brand goals. Therefore, you must enact a combination of proactive media coverage, direct marketing, and always-on advertising to build brand knowledge. To do steps 1 and 2 without 3 would simply be unwise.
The expansion of alts into retail is among the greatest growth opportunities in the history of finance. Every investment manager in every facet of the industry needs to evolve to achieve success. In each facet, evolving the approach to brand and distribution is essential to maximize sales success—particularly as the space matures.
Without a defined and well-known brand, winning in the alts space won’t come easy.