Capital Markets Insights

Are Aging Processes Stopping Opportunities in Alternative Investments?

Private real estate. Hedge funds. Commodities. Cryptocurrencies. Private equity. These are just a few types of investments broadly classified under the umbrella of “alternative investments”. And it is an umbrella that is quickly growing, with total assets under management in alternatives blowing past the $9 trillion mark in 2021. Just five years ago, this figure was closer to $4 trillion.

This meteoric growth seems likely to only accelerate. As the world emerges from the ultra-loose monetary policy era brought about by the pandemic, volatility is set to spike – creating a favorable backdrop for alternatives. Investors want non-traditional diversification, a hedge against rising inflation, and a potential for returns far beyond the market norms. Alternatives can offer all that.

This is why we’ve seen asset managers expanding their alternative investment divisions. Why US regulators are fighting to raise the pensions cap on alternatives. Why major investment banks have said that the traditional 60/40 portfolio is no longer enough. And why wealthy investors are pouring billions into this asset class.

Throw in the fact that millennials and Gen-Z are highly comfortable with alternatives – not to mention dedicated to sustainability – and you can see that alternatives’ shift toward the mainstream is inevitable. As the battle for investors’ wallets heats up, alternative investments are a crucial battleground that could determine the difference between being a market leader or a market lagger.

Financial Institutions Still Hold the Advantage Even as Competition Intensifies – But for How Long?

The battle to win this market is not merely between the financial institutions themselves. Fintechs are also aggressively entering the picture, using “direct to investor” digital platforms that allow qualified investors to instantly participate in select deals in a convenient and user-friendly manner. While the space is nowhere near as saturated as others, competition is intensifying. Expect to see more and more fintechs entering the alternative investments arena in the coming years.

The good news is that financial institutions still have distinct advantages. Namely, they already have a large investor base – meaning they don’t have to burn through as much as cash as the fintechs do to acquire new customers. They also hold the edge in credibility, being established brand names often with decades of history backing them.

But clinging on to the belief that these advantages are enough in an increasingly competitive market is complacency, which inevitably leads to stagnancy and falling behind. To stay ahead and ensure they don’t lose ground to the encroaching fintechs, financial institutions must address their key deficiency – user experience.

Lack of Digitalization Creates a Tedious and Lengthy Multi-Step Process

Many financial institutions offer access to alternative investments via their investment advisors. The deals originate from specialized desks – such as equity capital markets – then flow through to their investment advisors and on to their clients, the individual investors. This is a multi-step process that is far from instant, which is a far cry from the user experiences offered to us by modern tech companies.

And legacy processes only exacerbate this. Thanks to them, investors must also contend with:

  • Tedious onboarding and verification of accredited status – often requiring the filling out of physical forms
  • Filling out complex subscription documents – often with many redundant fields – by hand. 
  • A lengthy and frustrating back-and-forth in actually completing the subscription documents as their complexity often results in errors and omissions
  • Slow updates on the deal progress that they are unable to check themselves (they have to wait for the advisors to update them via phone or email)

All these stretch out deal completion and lead to a subpar investor experience. And it is these weaknesses that fintechs are capitalizing on.

Improve the Investor Experience While Boosting Efficiency to Win the Alternatives Race

As we said, traditional financial institutions already have the advantage. But to keep their leading position, they cannot afford to allow their weaknesses to drag them down. Not only are the fintechs circling, but there’s also the battle between the financial institutions themselves for market share.

That’s where Katipult can help. Our specialized platform streamlines and automates private capital deals to create accelerated deal execution and an unparalleled investor experience. 

Imagine having a platform where investors can onboard using “smart” digital forms where only relevant fields are shown – allowing you to quickly verify their accredited status. A platform where subscription documents can be smoothly executed with minimal errors. A platform where real-time updates are immediately available to all parties.

The best part? You can get all this while taking up fewer resources from your compliance team. There are fewer manual checks, investor updates, and form processing needed from them. You can boost both internal efficiency and the investor experience. 

That’s why Tier-1 clients like Raymond James have already been using our platform to scale their alternative investments pipeline. Find out how we can help you do the same.