While many advisors are arguing over how portfolios should be split between equities and fixed income and the viability of the 60/40, the real argument should be over how much of a portfolio should be devoted to alternative investments, said Robert Picard, Hightower Advisors’ managing director and head of alternatives for its Investment Solutions group, which has $3.5 billion in assets under management.
One of the biggest trends upending the investment world today is the “democratization and miniaturization” of private markets or alternative investments, Picard said in an interview.
Some retail investors should look to billionaires and institutions for their investment guidance, he said. The average institutional investors have up to 50% of their portfolios in private markets, while the average retail investor has 5% or less in private markets, he noted.
“Today we have data that shows that on a one-year, three-year, five-year and even 30-year basis, allocations to private markets—meaning having a 20% or 30% allocation to private markets during those time frames—you actually generate better risk-adjusted returns than a traditional 60/40 percentage,” Picard said.
About 87% of companies that have $100 million or more in revenues are privately held, he added. These companies are often run by the founder, who knows the operation best, he said. Couple that with the fact that the minimum investment in private assets is no longer in the millions, but could be as little as $10,000, and you have an opportunity for retail investors, Picard said.
Even many 50-year-old and 60-year-old investors are becoming comfortable with foregoing some liquidity in exchange for the greater growth of private assets, he said. This trend, in turn, has slowed the growth of IPOs, as more companies remain in private hands for longer, he added.
Hightower is keeping this trend toward private investments for retail clients in mind as its advisors create portfolios, Picard said.
Another trend that is influencing where investments are placed is family offices opening up their private funds to outside investors.
This market phenomenon mirrors the way private banks in Europe and the U.S. were created—by allowing retail investors to invest alongside the wealthiest families, he said.
Another trend among wealth investors is investing in sports franchises, he said. Investments in sports teams have also been democratized to a certain extent, although some are still very expensive, Picard said. Streaming media services have made this more popular, and have made it a worldwide phenomenon that includes all kinds of sporting events, he said.
“We've discovered that a lot of billionaires have been making a meaningful amount of money by investing in sports franchises,” Picard said. “The beauty of the private markets now is there's the ability for fund managers and private market investors to participate in team ownership through different investment funds so that they are imitating where billionaires have made a meaningful amount of money."