Market turbulence is fueling rising interest in integrating less-liquid alternatives into advisory platforms. In 2022, 25% of managed account sponsors were interested in adding less-liquid products, up from 14% in 2020, according to the latest edition of Cerulli Edge — U.S. Managed Accounts.
On average, advisors allocate less than 3% of their book to illiquid alternatives and expect to increase allocations over the next two years, according to Cerulli. Meanwhile, sponsor firms trying to integrate less-liquid products into their advisory platforms face significant challenges.
“Managed account platforms have long been centered on daily liquid products, and the entire managed accounts technology stack — from proposal generation to compliance to statement generation — has centered on daily liquid investment vehicles,” says Matt Belnap, associate director of retail distribution for Cerulli Associates.
“Incorporating less-liquid products takes substantial coordination. The technology integration is a long process with which many sponsors are just beginning to grapple; however, there is a market opportunity for firms that can effectively add this competency. No firm truly has moved ahead or differentiated based on its implementation of alternatives into advisory platforms,” adds Belnap.
Cerulli expects sponsors will continue to work on implementation or seek partners that have resources and tools to enable faster speed to market. “Strategic partnerships bear watching, as that may be the easiest entry for many sponsors,” says Belnap. “Market conditions will be key as well—should turbulence cease and equity and bond markets recover, the interest and urgency to increase alternative allocations could fall off substantially, just as it did a decade ago,” he concludes.