June 13, 2024

Alternatives to Essentials: What iPhones Can Teach Us about the Mainstreaming of Alternative Investments 

By: Sara Dotterer

When the first iPhone hit the market, it was a game-changer: a sleek, innovative device that only the tech-savvy or affluent could afford. Fast forward almost two decades, and iPhones are everywhere, in the hands of teenagers, professionals and grandparents. What was once a luxury for early adopters has become an everyday essential. 

So, what needs to happen for the previously out-of-reach “alternative” to become essential to every portfolio?

From Exclusive to Everyday

Alternative’s ability to generate returns that exceed public markets has made them an increasingly-popular addition to a diversified portfolio. By 2025, total alternative investments under management are projected to reach $17.2 trillion—quadruple the AUM in 2010. Historically, most of that money has been invested by institutions and UHNW families due to high minimum investment requirements, longer investment horizons, and higher risk with little transparency. This made it accessible to the few, not the many. However, private equity, hedge funds, real estate, and other alternatives are no longer exclusive to the financial elite. Just as iPhones moved from niche to mainstream, these investments are becoming accessible to a broader audience, reshaping the landscape of finance.

The Shift in Supply and Demand

When iPhones first launched, supply was limited, and demand was sky-high among a select few. As production ramped up and more people saw the value in owning one, iPhones became widely available. Similarly, the democratization of alternative investments is driven by increased access and awareness. Platforms like iCapitalCAIS, Yieldstreet, and Fundrise are lowering the entry barriers for financial advisors and individual investors, offering a spectrum of minimum investment requirements. For instance, Fundrise allows individuals to start with as little as $10, Yieldstreet offers opportunities with a minimum investment of $10,000, while iCapital and CAIS, catering primarily to financial advisors, have a minimum investment requirement of $25,000  and $100,000 respectively. This is similar to the iPhone distribution model, where initially, purchases had to be made directly from Apple at full price. Over time, distribution expanded through partners like Verizon and T-Mobile, creating greater access through discounts and varied pricing models.

Today, Fundrise reports having over 2 million users and a portfolio consisting of 290 active projects worth more than $7 billion. This translates to an average of $3,500 AUM per user, a significant shift from five years ago when a minimum investment of $250,000 and a five-year hold were required. One driving force behind this change is the trend of businesses staying private longer, causing the public equity market to no longer reflect the full spectrum of investment opportunities. Additionally, interest rate increases have shifted fixed income considerations from traditional bonds to a rapidly growing private credit market. As fintech continues to evolve, the democratization of alternative investments is likely to expand further. With this growth, it will be more important than ever for brands to differentiate their offerings.

Marketing Alternative Investments in the New Era

For marketing professionals at financial institutions, this shift represents both an opportunity and a challenge. How do you stand out in a crowded market? How do you educate potential investors about the value these investments can add to their portfolios? 

As alternatives providers expand beyond institutions to individuals, one of the biggest shifts has been the development of a customer service mentality beyond being a good steward of client capital. This is something technology providers learned the hard way from Apple. Apple revolutionized customer expectations by emphasizing user experience, accessibility, and constant support.

How do you service the needs of this big broad new world? Everything has to become accessible: easy to use and understand, around the clock. 

Here are some strategies to consider:

  • Emphasize Education: Just as early iPhone adopters needed to understand its features and benefits, investors and their advisors need clear, accessible information about alternative investments. Despite alts expansion, 33% of Americans have not heard of alternative investments (for those who have never invested, the number increases to 73%). In fact, 70% of advisors believe there is a lack of alternative investing educational materials. There is a need for simple and engaging visual content that highlights the potential for diversification, enhanced returns, and risk management these investments offer, making it easier for advisors to present the market to their clients.
  • Build Trust Through Transparency: To bring a broader swath of investors into a new space, you need to build trust, not just understanding. Therefore it’s important to be transparent in communicating the risks and rewards of alternative investments, and be clear about where capital has been deployed with regular investor reports. Share testimonials, case studies, and performance data to build credibility and reassure potential investors and assist them in making informed decisions. Equip your investor portal with accessible data to navigate their current investments with ease and intelligence. 89% of advisors leverage a client portal, and 60% of clients log into their portal daily or weekly, emphasizing the importance of digital service.
  • Tailor Your Messaging: Different investor segments have unique needs and concerns, and your messaging needs to be customized to address these specific goals. For instance, 75% of investors aged 21 to 42 doubt traditional stocks and bonds will provide above-average returns, with 80% of young investors turning to alternative asset classes like private equity, commodities, and real estate. We know that younger investors tend to be interested in high-growth opportunities, while older investors prioritize stability and income generation. But beyond that, people of all ages have unique investment goals and risk preferences, and expect to be treated as individuals. 
  • Leverage Technology for Personalization:  87% of decision-makers are excited about the pace of technological and cultural change within financial services. Especially with the growing usage of AI, technology can transform how you market and manage alternative investments. Use digital platforms for educational webinars, virtual consultations, and personalized portfolio analysis. These need to be accessible and serviceable 24-7. 
  • Harness Data: Boost your use of data to support the innovative ways you design clients portfolios and grow their knowledge-base. 98% of investment professionals agree or strongly agree that the use of better alts data can help identify innovative ways to generate returns; 4 out of 5 alternative investment managers plan to increase their budget for alternatives data. 

The New Investment Normal

The mainstreaming of alternative investments mirrors the indispensability of iPhones in our daily lives, promising to become a foundational element in modern portfolios. Investment companies now face the opportunity to reach a vastly larger universe of investors. Success in this new era hinges on adopting a customer-centric mindset, offering transparency, robust reporting, and flexible access to instill confidence and control in investors.

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