Institutional investors are the main investors in alternative assets
Most alternative assets use strategies that retail investors would find complex. The minimum amount that needs to be invested in an alternative asset fund is also restrictive for most retail investors. As a result, the largest class of investors in alternative assets are institutions.
Pension funds driving growth in alternative assets
There are different types of institutional investors. In recent years, meanwhile, pension funds are the institutions that have invested most in alternative assets.
Historically, pension funds tended to invest primarily in bonds, large-cap equity, and select alternative assets. The move toward alternative assets began following the 2008 crisis, and was prompted by how alternative assets performed during the crisis. As well, alternates offer more avenues for investment in infrastructure. Infrastructure investments provide a more stable income flow to pension funds, all the while helping them to diversify their assets.
Other institutional investors are also keen on alternates
Pension funds are responsible for 33% of all investments in alternative assets, making them the biggest institutional player in this class. Wealth managers are next, with 18% of investments. Insurance companies follow with 9%, sovereign funds have 6%, and endowments and foundations account for 3% of investments in alternative assets.
Retail investors are increasingly participating in alternative assets through innovative ETFs such as the SPDR SSgA Multi-Asset Real Return ETF (RLY). This ETF tries to replicate the features of alternative assets with their investments.
Alternative asset managers such as BlackRock (BLK), KKR & Co. (KKR), JPMorgan Asset Management, a business unit of JPMorgan, (JPM), and Invesco (IVZ) have used institutional and retail interest in alternates to their advantage in recent years. ETFs focused on alternative assets have also seen inflows increase.