Written by: Deshawn Peterson
One thing that I love about my profession is that I get to listen to people way smarter than myself talk about topics that I find interesting. I am in constant awe in the world of investments and personal finance. The number of problems being tackled via capital allocations is crazy. When you bring the capital, it's on a hunt for problems and ways to solve them cheaper than before.
That's the exciting realm of alternative assets! Let's dive into what makes them unique and why they're gaining momentum in the business world.
What Are Alternative Assets?
Alternative assets are investments outside of traditional stocks and bonds. They include things like real estate, private equity, hedge funds, and commodities. These assets have historically been seen as inefficient due to various reasons, like high entry price points, heavy operational lifts, less regulation and more. The one thing about the markets, they always find a way to bring a better product or service to the market if there’s a financial incentive.
The Big Picture
The alternative asset industry is like a growing giant. As of October 2023, it managed a titan amount of $24.5 trillion globally! That's more than double its size back in 2018. To put it in perspective, there’s $95 trillion in stocks and $105.9 trillion in bonds.
Why Should You Care?
While alternative assets make up only about 20% of all investments worldwide, they rake in up to 50% of the industry's revenue. It's expected that by 2027, the industry's revenue could soar to a staggering $250 billion annually.
Following the Money Trail
If history is any indicator of how where we've been can help predict where we'll go, you can look at the equities business. Back in the day, mutual funds charged higher fees, sometimes over 1%! But then, in the 1980s and 1990s, index funds entered the scene, offering lower costs and more options. Fast forward to now, and we see a trend of falling fees, thanks to the rise of ETFs and passive investing. A race to the bottom as some would refer to this concept. As more capital flows into the industry, innovation and open markets allow the best players to bring the best service. While the client or customer ultimately benefits.
The Future Is Here
Venture capital firms alone poured over $15 billion into alternative asset technology companies in 2022! And the party hasn’t stopped there. Projections suggest that investments could swell to over $20 billion by 2024!
Where's the Money Going?
Investors are betting big on technology. Platforms using AI and big data to analyze investments are trending. Also, anything that makes investing easier and more accessible, like user-friendly apps and lower minimum investment requirements, is getting attention.
Show Me the Money!
Here are just a few companies that are raising capital to bring greater access to alternatives across the client spectrum. These numbers are similar to late-stage tech companies. It just reflects the opportunity in the space.
- Rally Rd. is a company that allows individuals to invest in collectible cars. The company has raised over $100 million in funding and has over 200,000 members
- This company allows individuals to invest in fractional shares of fine art. They raised $110 million in Series B funding in 2020.
- A 2023 Preqin survey found that 79% of private equity fund managers believe technology will play a significant role in their businesses within the next five years.
- A 2022 Bain & Company report estimates the global alternative investments technology market to reach $20.8 billion by 2026, growing at a CAGR of 24%.
Challenges Ahead
This capital is looking to solve a wide range of hurdles and bottlenecks. Integrating new technology with old systems, cybersecurity concerns, and ever-changing regulations pose challenges. However, with innovation and determination, these hurdles can be overcome.
In Conclusion
Alternative assets may have once been seen as inefficient, but now it's seen as a land of opportunity. With the industry booming and new technologies emerging, the future looks bright for those willing to explore this exciting frontier of finance!
Sources:
https://www.cbinsights.com/research/report/fintech-trends-2023/
https://www.preqin.com/insights/global-reports/2023-private-equity
https://www.accenture.com/us-en/services/financial-services/fintech-innovation-lab
https://kpmg.com/xx/en/home/campaigns/2023/01/q4-venture-pulse-report-global.html
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