One of my favorite financial bloggers is Ben Carlson who also happens to be a portfolio manager at Ritholtz Wealth Management. Carlson recently wrote a story about alternative investments and the part they play within the global asset management industry.
According to Carlson’s statistics from the Boston Consulting Group, alternative investments accounted for 15% of the $69.1 trillion in global assets under management at the end of 2016.
However, alternative investments account for $104 billion or 42% of the fee revenue generated by asset management firms providing these products to investors. That’s an average annual management fee of 1.04%, almost ten times the 0.12% average annual management fee for passive investments.
To put it another way, passive assets under management in 2016, accounted for $2 trillion more than alternative investments, yet charged $90 billion less.
“Are there certain investors who have done well and will continue to do well investing in alts? Certainly, but it’s not a large cohort in my estimation’” wrote Carlson. “Those people who work for the alternative investment firms are getting much richer than their actual investors … This will continue for as long as institutional and family office investors are willing to pay exorbitant fees in exchange for a good sales pitch.”
So, if you’re hell bent on allocating some of your capital to alternative investments, here are seven of the best (and worst) alternative investments available to retail investors.