As traditional investments like stocks and bonds become less appealing to wealthy investors, private banks are ramping up efforts to meet the growing demand for alternative assets.
While publicly traded stocks and bonds have delivered strong returns over the past 15 years, many high-net-worth individuals (HNWIs) are turning to alternatives, driven by concerns about overvalued public stocks, potential inflation, and increasing market volatility. This shift is prompting private banks to broaden their offerings and expertise.
Mark Sutterlin, head of alternative investments at Bank of America Private Bank and Merrill Lynch, highlights the rise in demand, noting that many clients could benefit from allocating around 25% of their portfolios to alternative assets. This marks a significant departure from the current trend, where ultra-high-net-worth investors (with over $30 million in assets) allocate 22% of their wealth to alternatives, while those with $5 million to $30 million invest just 3%, and individuals with $1 million to $5 million invest less than 1%.
With individual investors and family offices controlling more than half of the $289 trillion in global assets, there is a substantial, untapped pool of capital for alternative asset managers. Preqin, a leading research firm, projects that alternative assets—including private equity, hedge funds, real estate, and infrastructure—will grow from $16.8 trillion in 2023 to $29.22 trillion by 2029, fueled by rising demand from private banks, family offices, and wealthy individuals.
Rising Interest in Private Equity and Credit
Among the alternative asset classes, private equity and credit are seeing the strongest growth. Despite a rough year for hedge funds in 2022, when both stocks and bonds experienced double-digit losses, private equity and credit continue to attract significant attention across the wealth spectrum.
William Whitt, an analyst at Datos Insights, predicts that strong demand for private equity and private credit will persist, particularly if the economy remains healthy.
Evolving Investment Strategies
A key driver of this demand is the evolution of private market offerings. Leading firms such as Blackstone, KKR, and Apollo Global Management have adapted by launching funds with lower investment minimums, reduced fees, and greater transparency. These changes are helping investors access top-tier strategies on more favorable terms.
To better serve their HNW clients, some private banks, including Deutsche Bank, are launching separate entities, such as DB Investment Partners, to facilitate access to private credit investments. This move reflects the growing demand for floating interest rates, which have gained popularity in recent years.
Asia’s Shift Toward Alternative Investments
While North America and Europe lead in the adoption of alternatives, Asia is also showing strong interest. Chee Jiun Wen, head of alternative investments at Bank of Singapore, reports an increasing demand from clients across various alternative asset classes. The bank is training its relationship managers on alternative investments and has expanded its offerings by launching a digital platform in partnership with iCapital, giving independent asset managers access to over 1,600 funds and research tools.
“We’re a first mover in this space in Asia,” says Chee, emphasizing the platform’s role in empowering asset managers to select investments that align with their clients’ goals.
A Key Differentiator for Private Banks
As the shift toward alternatives gains momentum, private banks face the challenge of effectively guiding their clients through the growing alternatives market. For wealth managers, helping clients smoothly transition to alternatives will be a major differentiator in an increasingly competitive landscape.
Trish Halper, CIO at Northern Trust’s family office practice, notes that family offices have long been early adopters of alternative assets, with allocations ranging from 30% to 50%. As more HNW clients follow suit, financial advisors must dedicate more resources to sourcing quality investments, conducting thorough due diligence, and managing operational tasks, such as capital calls and distributions.
A Changing Landscape for Private Banking
With alternative assets playing a larger role in investment portfolios, private banks are investing in technology and talent to manage this transition. According to Sutterlin, for investors seeking true diversification, private markets in both equities and fixed income are now an essential part of the capital markets.
As the alternatives market continues to expand, private banks are positioning themselves to help HNW investors navigate this evolving landscape, ensuring that their portfolios remain diversified and aligned with long-term financial goals.
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