![Alternative Investing: Alts For All - [Business Breakdowns, EP.234]](https://megaphone.imgix.net/podcasts/539efde2-bbca-11f0-8ebf-fb11c715d852/image/2cc30e1699c1092f43d9c8a3db6a34e8.jpg?ixlib=rails-4.3.1&max-w=3000&max-h=3000&fit=crop&auto=format,compress)
Contrary to the perception that alternatives are complex, their core business models are often simpler than many public market instruments. The concept of direct lending (loaning money and collecting interest) is more straightforward for a retail investor to grasp than the mechanics of a structured note sold by a bank with embedded options.
Morgan Stanley projects a $4 trillion AUM growth opportunity if retail investors increase alternative allocations to near-institutional levels. This figure coincidentally mirrors the estimated shortfall in American retirement savings, suggesting this market expansion could directly help individuals secure a better retirement.
The conversation around adding alternatives to 401(k) plans is not about offering standalone private equity funds. The practical implementation is embedding this exposure within target-date funds, often as collective investment trusts, which mitigates liquidity risk and simplifies the investment decision for participants.
While fears of retail investors gambling on venture capital exist, the primary growth in retail alternatives is in yield-oriented strategies like private credit and infrastructure. These products meet the demand for high current income and lower volatility, especially for those in or near retirement, making them a more logical first step.
Increased retail access to alternatives helps level the playing field between individual and institutional investors. However, capturing this opportunity favors large, scaled managers like Blackstone and Apollo who can afford brand marketing and distribution. This dynamic accelerates industry consolidation, widening the gap between mega-firms and smaller managers.
A recent SEC no-action letter leveled the playing field for 506(c) funds, allowing general solicitation and public marketing during fundraising. This seemingly minor change transforms the go-to-market strategy for alternative managers, moving from private institutional networks to public brand building and media engagement to attract retail capital.
Recent "canary in the coal mine" cases like First Brands, often blamed on private markets, were not PE-owned and were primarily financed in liquid markets. In fact, it was private credit firms pushing for deeper diligence that exposed the issues, strengthening the argument that private credit offers a safer way to access the asset class.