Alternative investment managers are likely to continue growing well into 2025, according to EY. But asset managers may be overly optimistic about cracking the high-net-worth investor market, a big part of most firms' growth plans.
For a number of years, alts firms have been ramping up efforts to expand beyond their core institutional clients, many of which are near their target allocations, and reach individuals, who are just getting started with private equity. And while firms have had some success so far with wealthy investors, profits may be more elusive over the long term.
Still, a report published on Wednesday by EY, points to the alternative space growing at historic levels. The consultant reported that of a survey of more than four hundred institutional investors and alternative fund managers globally, 70 percent expect the trend to continue in the coming years. Respondents expect overall investments to increase by 22 percent over the next two years, and half are actively working to diversify their strategies.
The report said that alternative assets under management have grown from $14.5 trillion in 2021 to $19.5 trillion at the end of 2024. Forecasts suggest this could rise to almost $30 trillion by 2029.
Even though private markets overall have faced a tough investing environment, respondents to the survey said their alternative assets have outperformed expectations in 2024.
EY’s 2024 Global Alternative Funds Survey also found that the industry overall has clearly shifted to wealthy investors as the next paradigm for growth. Respondents ranked “accessing more wealthy investors” as the greatest strategic priority, particularly those in North America.
The biggest obstacle to accessing these wealthy individuals may be economic, however, not whether firms are able to attract a high number of ultra-high-net-worth clients. The question is whether they are able to serve them profitably. That's because tapping thousands of individuals requires sophisticated and expenisve sales and marketing, costly client services, and additional compliance and reporting.
EY outlined suggestions for alternative fund managers targeting individuals, including enhancing investor education capabilities, harnessing artificial intelligence in offerings, striving for diversification, and achieving scale. For institutional investors, asset managers need to focus on growth areas, such as infrastructure and cryptocurrencies.
Jessica Bloom, partner on the wealth and asset management team at EY, told Institutional Investor that alternative fund managers, particularly those headquartered in North America, are actively looking for new investor types and are looking to access the retail and mass market, HNW and UHNW clients much more strategically.
"These firms have historically only catered to institutional investors, so this is new territory," she said. “The democratization of alternative asset classes has been gaining momentum in the last few years, and individual investors are increasingly seeking alternative returns that offer diversification from traditional markets. However, new clients bring with them new challenges for alternative fund managers.
"Particularly when it comes to liquidity, transparency, suitability, and complexity around these asset classes that must be addressed.”
As the demand for private assets grows, so too does the need for increased headcount at fund managers, according to EY and others, including Preqin.
The annual 2025 Preqin Private Capital Compensation and Employment Review report found that 89 percent of private markets firms have plans to maintain or increase headcount in the coming months and years — across asset classes. The report surveyed 86 private capital firms in real estate, growth capital/equity, leveraged buyouts, venture capital, and private debt on compensation and hiring. Investment professionals are the most in demand to recruit and retain.
