“It’s a broad range of investments, depending on the risks we’re taking,” says Zook. “Real estate, finance, midstream. When I talk about private equity, I tell people that I do not personally put my money in anything that I do not have an extremely high level of confidence will generate a 15% or higher internal rate of return, net of all costs, and a two-times multiple on my money.”
Zook says that advisors will need the alpha provided by alternatives, particularly private investments, to truly differentiate themselves if the projections for a low return environment in public markets come true.
For advisors to be able to leverage those opportunities, more education about alternatives will be needed. “The biggest challenge for RIAs and the broader public is how to access these strategies, how to vet them and how to find managers who are a good fit,” says Steinberg. “The challenge on the other side for hedge funds and alternative managers remains how to bring these products to a larger group of people.”