The Right Custodian Can Make All The Difference In Alternative Assets
Investors’ hunger for portfolio diversification is driving more independent Registered Investment Advisors to consider alternative asset investments.
“The number of advisors entering this space is incredibly high, certainly better than 50 percent,” says Kyle Erion, Vice President and Business Development Officer for Institutional Trust and Custody at U.S. Bank.
Traditionally, advisors have focused on such traditional investments as stocks and bonds. With strong stock market performance over the past several years, though, high net worth individuals and families are looking for ways to diversify their investments.
“The market has been doing really, really well for some time, driving up the appetite for diversification within portfolios, primarily on the high net worth side,” he says. “It’s a way for families to pool resources, to broaden their investment scope.”
As a result, Erion says, a significant percentage of advisors have gotten into such alternatives as hedge funds, private equity funds, real estate investment pools, and pools of commodities has grown with their clients’ appetites for alternatives.
“It’s a way for advisors to differentiate themselves within their prospect and client base to say, ‘Hey, not only can do we have expertise in stocks and bonds, we can also generate value for you using alternative assets,’” Erion says. “A lot of the advisors that we work with are want to be a full-service provider and trusted financial partner for their clients.”
A recent survey by PPB Capital Partners of 250 RIAs with at least $500 million under management reflects that point. Those surveyed said more than 50 percent of their clients have invested in alternative assets.
Managing those investments isn’t easy, though, PPB Capital Partners found.
“Our survey reveals that RIAs are hamstrung with the level of difficulty administrating and operating alternative funds as opposed to spending time with clients,” says PPB Capital Partner’s EVP and COO Adam Stern. “We know from our previous survey that RIAs are allocating more to alternative investments and now we understand where the operational pain points exist.”
Advisors need a custodian with the capacity to handle such investments in addition to traditional stocks and bonds. And not all custodians are created equal on that front. Alternative assets require a more hands-on approach than more traditional investments, Erion says, and not all custodians are up to the task.
“Some custodians in the industry shy away from these types of assets because it’s a more manual process to get the information and to evaluate the asset, to ensure that it is something that can be efficiently held and more labor intensive to keep the asset properly logged,” he says.
And as one of the nation’s largest financial institutions, U.S. Bank has the resources and capacity to manage alternative assets for RIAs.
“Not only are we willing to hold most alternative assets within reason, we have dedicated resources that are experts in posted and maintaining the assets in a timely and accurate fashion. As is the case with everything we do, we aspire to be a one stop shop for advisors. If you only hold stocks and bonds, great; if you want to expand your practice to be more boutique, we can be a partner for that as well.”
©2018 U.S. Bank 071218. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness.