Making alternatives accessible matters
In the past, alternative investments – or alternatives – were only available to large institutional investors.
Today, regulatory changes and the introduction of new investment structures are making them increasingly available to more types of investors.
I believe the ‘democratisation of alternatives’ is positive. It gives private wealth investors greater access to alternatives – investments that fall outside of more conventional categories such as cash, bond or stocks, including private equity, real estate and hedge funds – enabling them to diversify their portfolios and potentially receive enhanced returns on investment.
Evergreen strategies
Traditionally, the main risk associated with alternative investments has been around liquidity, as most strategies were closed-ended, meaning that capital had to be locked in for the entire length of the strategy.
Now, an increasing number of open-ended strategies – also known as evergreen – are being introduced, offering more frequent liquidity than the traditional closed-ended ones. This is particularly important for private wealth investors or smaller institutional investors who may need more flexibility on when capital can be accessed.
The barrier to entry is also lower, often requiring a minimum investment of thousands or tens of thousands of US dollars, as opposed to millions.
Educating investors
We’re focused on growing our wealth business. Alternatives is a really strong part of that proposition and HSBC Asset Management is launching its own evergreen strategy in the private equity space.
In the wider industry, a lot of educational work is underway around these new alternative investment structures to ensure investors understand them and know what to expect.
The point of democratisation is about bringing asset types to people who haven't necessarily had exposure to them, so you need to educate them to ensure they're appropriate for their investment needs.