50/30/20 is the New 60/40

In today's investment climate, investors are facing significant challenges amid a volatile and uncertain economic environment. The 60-40 portfolio, a popular investment strategy that relies on diversification, may no longer be as effective as it once was. This portfolio depends on a negative correlation between stocks and bonds, but currently, the market shows a positive correlation between these assets, making it challenging for investors to maintain their investments as they are.

The demand for alternative investments is rising among investors, according to Gregg Sommer, a partner and U.S. financial intermediaries leader at Mercer Investments. Sommer and his team at Mercer are looking to capitalize on this demand and support their clients, including wealth managers and advisors, to transition towards alternative investments.

Despite a historic reluctance to engage with alternative investments due to a lack of access, knowledge, and transparency, the current market conditions have presented new opportunities. A recent survey conducted by CAIS and Mercer shows that 85% of respondents reported that their clients are looking to invest in new products or structures within alternative investments. Furthermore, 68% of respondents revealed that their firms are rolling out new products and structures to meet the demand.

According to advisors who participated in the study, real assets, private credit, and private equity are among the most promising alternative investments in the current economic environment. As a result, financial advisors are looking to increase their allocations to alternative asset classes over the next two years. Nearly nine out of ten financial advisors (88%) intend to increase their allocations, with more than half (52.6%) of them considering raising their alternative asset allocations to over 15% in the next two years. Additionally, more than one-fifth of advisors (20.6%) estimate that their alternative asset allocations will exceed 25%.

According to Matt Brown, Founder and CEO of CAIS, the demand for alternative investments represents a significant business development opportunity for the industry. Brown notes that "with financial advisors shifting away from the traditional 60/40 allocation toward a three-dimensional portfolio representing a 50/30/20 mix between stocks, bonds, and alternatives, alternative asset managers could be presented with one of the greatest business development opportunities our industry has seen."

Sommer and Brown share a common goal at Mercer and CAIS of providing "responsible access with purpose" to their clients. Mercer is committed to providing its clients with the necessary resources to enter the alternative investments market successfully. These resources include education, product due diligence, and a seamless tech and user experience. Brown emphasizes that "it's about the financial advisor having a great experience, because when done responsibly, these investments will help end investors pay for their retirement and their children's education."

In conclusion, the demand for alternative investments is increasing among investors, particularly financial advisors. Mercer and CAIS are working to provide their clients with "responsible access with purpose" to the alternative investments market. By transitioning away from traditional investment strategies and towards a three-dimensional portfolio, investors and advisors may be presented with one of the greatest business development opportunities the industry has seen.




Adapted from source: Lev, Benjamin. "Here Come the Alts." RIA Intel, 15 Nov. 2022, www.riaintel.com/article/2awdtuj6nuhzalzb2eeps/investments/here-come-the-alts.

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