Private Wealth Fuels Massive Shift in Alternative Assets

In Brief:

Michael Sidgmore, co-founder of Broadhaven Ventures and creator of the Alt Goes Mainstream podcast, shared insights on the convergence of private markets and private wealth in this Capital Allocators interview. While institutional investors typically allocate 20-50% to alternatives, private wealth portfolios hold just 2-5%. However, this gap is rapidly closing, with the six largest private banking platforms committing $110 billion to alternative funds last year—twice the amount from North America's largest institutional investors. Every 1% allocation shift from private wealth could mean $500 billion in new investments, creating significant implications for the entire investment landscape.

Big Picture Drivers:

• Wealth Transformation: Private wealth platforms are institutionalizing their approach to alternatives

• Distribution Evolution: Asset managers are building specialized wealth teams with hundreds of staff

• Product Innovation: Evergreen structures are enabling better liquidity options for individual investors

• Market Consolidation: Both asset managers and wealth platforms are consolidating rapidly

Key Insights:

• Brand Premium: Name recognition is critical—when asked to name alternative asset providers, "I don't know" was the top response

• Size Advantage: The top six alternative firms raised an average of $12B each from wealth channels in 2024, versus just $1.7B for firms ranked 7-25

• Resource Requirements: Successfully targeting wealth channels requires significant investment in distribution, education and operations

• Asset Pricing: Increased capital flows may compress returns in certain sectors unless managers can access unique deal flow

• Liquidity Innovation: Evergreen structures can provide similar multiples with lower IRRs than traditional closed-end funds

• Marketing Priority: Content creation and brand building are becoming as important as sales for alternative managers

• Channel Complexity: Wealth distribution is more complex than institutional, requiring different approaches for wirehouses, RIAs and private banks

By The Numbers:

• $500 billion: Potential new investment for every 1% allocation shift from private wealth

• 1-3%: Current private wealth allocation to alternatives versus 20-40% for institutions

• $110 billion: Amount committed by the six largest private banking platforms to alternative funds last year

• $12 billion: Average raised by top six alternative firms from wealth channels in 2024

• 200: Number of evergreen funds in the US market compared to thousands of closed-end funds

• $125-175 bps: Typical management fee for evergreen funds versus 200 bps for traditional structures

• 60: Different evergreen fund options available at one major wirehouse

Memorable Quotes:

• "These firms have evolved from funds into firms." - Michael Sidgmore on how alternative managers have become diversified financial platforms

• "We'll go from 11,000 plus firms or so to 100 platforms." - Dave Layton, CEO of Partners Group (quoted by Sidgmore) predicting massive industry consolidation

• "The top six firms, 2024, they raised $12 billion. The top seven through 25 firms only raised $1.7 billion." - Michael Sidgmore highlighting the dominance of the largest players

• "Marketing is as important as distribution and sales. You need the aerial support from marketing and the constant barrage of information and communication with investors." - Michael Sidgmore explaining the changing marketing dynamics in alternatives

• "I think content's critical... It's become a business across content, community, and capital. Those three pillars all go hand in hand because you need all three in today's world." - Michael Sidgmore on the emerging business model for success

The Wrap: 

The private wealth revolution in alternatives represents a seismic shift in capital allocation with far-reaching implications. As wealth platforms institutionalize and alternative managers adapt their distribution models, the impact on asset prices, returns and industry structure will be profound. Those who successfully navigate this convergence through brand building, product innovation, and strategic partnerships will likely emerge as the dominant players in the next phase of alternative investing.