Younger Investors Turn to Alternatives

Every year a myriad of investor surveys are published, and the findings are typically polarized between blindingly obvious and uselessly abstract. Consequently, it was a joy for us to read a study entitled ‘2022 Bank of America Private Bank Study of Wealthy Americans’ published in late October. Not only was the compass of the questions posed to the sample significantly broader, but it is also fascinating to see how the responses varied between age groups. This is particularly significant because the findings reveal that a dramatic shift in the influence and control over the largest share of US personal wealth is underway, with $84 trillion expected to pass (primarily) from the baby boomers to Gen X and the millennials between now and 2045. This has substantial ramifications for wealth managers, financial intermediaries, and asset markets going forward.

The generation gap…

For the purposes of publishing their findings, Bank of America split the respondents into two broad age segments: those aged 21-42 and those aged 43 and over.

Source: Salesforce.com

Unsurprisingly, the older age bracket adopts a much more conventional approach to constructing an investment portfolio, with sustainability not being at the forefront of considerations, despite a broader trend that has seen ownership of sustainable investments more than doubling in the last four years. Only 28% of older respondents use sustainable investments compared to 73% of millennials.

It is a similar picture when the conviction of the two age groups in traditional asset classes is measured. Accordingly, 68% of older investors continue to believe that it is possible to achieve above-average returns through a portfolio invested solely in stocks and bonds, compared to only 25% of the younger age group.

The final word…

In our view, the most interesting finding of all is that 80% of younger investors are looking to alternative investments, such as private equity, commodities, real estate, and other tangible assets. Compared to older investors, they allocate three times more of their investment portfolios to alternative strategies and only half as much to stocks.

The dynamic is clearly shifting and, as Gen X and millennials progressively usurp the baby boomers as the most influential investor class, allocations to private markets are set to increase rapidly. That’s why we, at Stableton, are committed to helping investors fulfill this need by sourcing  top-tier growth equity deals on compellingly attractive terms.

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