This may well be the golden age of alternatives thanks to the relentless popularity of Bitcoin, NFTs, and the more prosaic private equity and venture capital. Last year Preqin predicted AUM for alts would hit $17 trillion by 2025, a 60% increase from $10.74 trillion at the end of 2020.1 Much of this growth is being driven by the big institutional players, but there’s growing interest from retail investors seeking greater portfolio diversification and higher returns.
Andrew Peek, CEO of Delphia, recently launched a Substack newsletter named Alt Class to address the growing interest and information needs of smaller retail investors. His approach focuses on providing individual investors with the knowledge they need to make appropriate decisions about their own portfolio allocations.
“Institutions are used to including alternatives in portfolio construction”, comments Peek. “They’re used to marrying it with real estate, equities, and bonds. That’s simply not something that’s being discussed right now at the retail level.
“There’s the traditional notion that a good portfolio is 60% equities to 40% percent bonds. This is undoubtedly changing now, but there’s a wider conversation that’s yet to be had regarding allocations of alternatives. For example, there’s little information or guidance on how much cryptocurrency would be appropriate for a typical retail investor or what an overall alternatives allocation target should look like.”
According to Preqin’s aforementioned report, average allocation to alternatives sits at 27% for pensions and 29% for endowments. In stark contrast, retail investors are allocating just 5% of their portfolio to alts. The implication is that retail investors may be missing out on the potential benefits of this rapidly-expanding sector. It’s an issue that’s already on the radar of the SEC who expanded the definition of “accredited investor” in August 2020 and expects total individual investable assets to rise from $70tn in 2018 to $106tn in 2025.2
While this change will affect a relatively small number of wealthy individuals who are now able to achieve accreditation, a more pressing issue is broadening access to the wider retail investor community.
Peek’s weekly newsletter will provide subscribers with exclusive in-depth analysis of the latest alternatives trends. Topics already covered have included fine wine and sneakers, with coverage of private equity, cryptocurrencies, commodities, and NFTs already in the pipeline.
“Alternative investments all require significant research and understanding before you part with any capital”, explains Peek. “That’s where Alt Class can help by providing regular updates and in-depth analysis on different alternative investments. We make it easier for retail investors to get up to speed faster and make investment decisions which are right for your portfolio.”
As well as being a serial entrepreneur and angel investor, Peek is no stranger to championing the smaller retail investor. He recently founded Delphia, an app-based investment platform that uses machine learning to make predictions across a large breadth of US equities. While Delphia runs on commercial data today, soon retail investors will be able to invest both their investment capital and their personal data, which Delphia hopes will generate Wall Street-beating returns.
“I co-founded Delphia because I’m passionate about levelling the playing field for retail investors”, adds Peek. “Our work focuses on making quantitative hedge fund strategies available to retail investors for free. By pooling data on things like Amazon purchase histories, Robinhood trading data, and social media activity, it’s possible to help retail investors compete against the big institutional players if we act as a collective.”
Tech-driven innovators like Delphia, combined with SEC involvement in broadening access,
may well herald a brand-new age for alternative investments. And perhaps more importantly, this time there’s a place at the table reserved for retail investors.
1 – Preqin, “Future of Alternatives 2025“