Young Investor Demand for Alternative Assets Is Reshaping Wall Street's Playbook

“Investor preferences are changing at the same time that the markets are evolving,” said Michael Pelzar, head of investments at Bank of America Private Bank. “Those two dynamics are at play that are feeding off of each other.”

The demand is reshaping how Wall Street pitches wealth-generating products. What used to be institutional is now increasingly being redesigned for individuals, albeit the well-connected and well-funded. Blackstone Inc. and Apollo Global Management Inc. are among investment firms repackaging their once-elite strategies for the masses into ETFs and semi-liquid funds.

The 60/40 model — allocating 60% to stocks and 40% to bonds — delivered respectable gains over much of the past decade. But its appeal has dimmed since 2022’s inflation-driven rout, as both assets began moving in lockstep, eroding the diversification benefit of the strategy.

“Some advisors may have just used the 60/40 portfolio over time and haven’t really felt the need to offer something in the way of alternatives,” said Mark Steffen, global alternative investment strategist at Wells Fargo Investment Institute. “But I think that’s probably changing.”

Supply is on the rise. A CAIS survey shows 80% of alternative managers plan to launch retail-friendly products and structures, nearly double from three years ago. Morgan Stanley, for instance, just filed to offer a multi-asset vehicle designed to provide exposure to everything from venture capital to private debt, real estate and infrastructure — all in one fund.

Many investors are opting into complex, costly, and often illiquid structures — even as the long-term payoff remains uncertain. Compared to tax-efficient ETFs, these alternative products tend to carry higher fees, greater opacity, and less liquidity. Blackstone’s flagship real-estate trust, for example, hit withdrawal limits during the 2022 interest-rate spike.

With private equity and credit poised to trail public markets for a third year, JPMorgan Chase & Co. strategists recently advised their clients to reduce exposure to both assets. A separate academic study has labeled alts “costly and wasteful.” And Moody’s Corp. warned the push to open private markets to the retail crowd carries “systemic implications,” such as growing liquidity risks.

Yet none of this is deterring industry fans in the era of get-rich-quick antics amplified on social media from TikTok to Reddit.

“I can tell you it’s most often easier to convince an entrepreneur to put money into a 1-in-10 shot startup than it is to get them to park money in a conservative, long-term strategy,” said Brian Werner, chief investment officer at Winthrop Partners.

Earlier this year, when Forge cut the minimum investment on selected offerings to $5,000, daily sign-ups more than tripled. Executives say the surge largely came from young users riding the AI wave — hoping to access firms like OpenAI before an IPO. Part of the appeal is cultural FOMO — the chance to signal early participation in the next major tech boom.

“A lot of them have a tech background, so they’re playing in their own sandbox with stuff that they know,” said Andrew Saeta, co-head of US capital markets at Forge. “The stocks-and-bonds model of our parents isn’t necessarily getting the job done in their eyes, especially with everything being so expensive.”

While the trend appears most pronounced among Millennial and Gen Z types, it’s pulling in a broader cohort. Chad Blackburn, an accounting executive in Nashville, Tennessee, started buying equities in his teens. Today, the 45-year-old largely avoids stocks and bonds, putting most of his capital into startup firms and — yep — Bitcoin.

“The dotcom bubble and great financial crisis forced me to think more deeply about my investments,” he said. “Why would I limit myself to just stocks and bonds, especially when a lot of this stuff is not nearly as diversified as you think?”

For many, alts aren’t just about returns, they’re a form of rebellion. Even among those who have benefited from the market’s gains, there’s a lingering distrust in the institutions that helped deliver them. They view public markets and 60/40 strategies as fragile or even rigged, having coming of age during the crashes of 2008 and 2020.

Real estate, digital currencies, and private equity now rank among the top picks for this emerging wealth class, according to BofA. The appeal is both psychological and financial: these assets are seen as detached from government interference and more likely to deliver big upside.

“They think, the system is rigged against me,” said Owen Lamont, a portfolio manager at Acadian Asset Management. “I have to do something out of the box in order to get rich.”

One reason that alternatives are being aggressively repackaged for individuals is that traditional buyers — pensions, endowments, insurers — risk being tapped out. Big institutions allocate about one fifth of their portfolios to alternatives, according to Preqin. By contrast, individuals in the BofA survey show an allocation of only 7%.

But painting alternatives with a broad brush can be misleading. According to Chris Toomey, managing director at Morgan Stanley Private Wealth Management, private credit and infrastructure appeal to older investors thanks to the promise of steady cash flows, though for the young cohort, private equity looks more attractive.

“They are at a point in their investment cycle where they have the ability to take on that risk,” Toomey said. “They’re early investors and they’ve got a much longer time horizon.”

Yet even among the younger generation, the shift in taste isn’t universal. For every investor chasing unicorns on Forge, there are thousands of Millennial and Gen Z savers. According to Vanguard Group Inc., many in this group are sitting on high cash holdings thanks to cash-default IRAs — at the expense of fully investing their capital in diversified portfolios.

There’s no monolithic investor and no single truth about alternatives. But the future of wealth management won’t resemble the past — and Wall Street is already rushing to profit from the generational shift.

“You’ve got this mix of investor preferences and product availability evolving in a way that they actually compliment each other to create this procyclical uptake in alternative investments,” said BofA’s Pelzar. “We’re probably in the early innings of a real wave.”

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Bloomberg News provided this article. For more articles like this please visit bloomberg.com.

Read more articles by Lu Wang