2024 EY Global Alternative Fund Survey | EY

New investors bring new challenges. Our research shows alternative fund managers are alert to the potential risks of broader engagement with individual investors, including:

• Liquidity – 48% of managers are worried about managing liquidity expectations.
• Transparency – the availability of data for risk monitoring and performance reporting is managers’ second greatest worry.
• Nomenclature – firms are concerned about a lack of standard parameters and definitions for alternative investments.
• Suitability – the organizational culture and norms of alternatives management and wealth advice are very different, with significant scope for miscommunication.

Managers’ concerns vary significantly between markets. Liquidity is the most acute concern in North America, where semi-liquid investment vehicles are more common. Firms in Europe view data availability and the lack of standardized infrastructure as by far their greatest concerns, while those in Asia-Pacific see data availability as a relatively big risk.

If there’s one theme that underpins all these responses, it’s the need for enhanced education. Ensuring that investors have a deep and nuanced understanding of the investments they’re making – including behavior, risks, and the range of potential outcomes should be the most important goal for firms seeking growth from individual investors. The need for education encompasses financial advisors, too.

Then there’s the biggest question of all – profitability. Addressing the potential risks of liquidity and suitability will add to the cost and complexity of alternative managers’ operations. Individual investors, drawing on their experiences with traditional asset managers and self-directed accounts, will typically expect frictionless onboarding, real-time reporting, and access to experts as a matter of course.

So what will it take for firms to attract new investors – and will the returns be worth it?

Of course, individual investors are far from new to alternatives investing, although most markets lag the US in terms of accessibility. But large-scale expansion will take many alternative managers, investors, and advisors into unfamiliar waters.

Serving more investors with higher service expectations, via a greater range of channels and intermediaries, will require firms to deliver a far wider range of customer journeys — as well as incurring additional costs such as placement agent fees. Firms will need to adjust their operating models accordingly.