Forward-thinking financial advisors are recommending alternative investments, now with increased availability for individual investors. It’s a way to differentiate their practices, Joan Solotar maintains.
“That’s what we hear from advisors, who use access to private investments in order to gain new clients,” Solotar, global head of Blackstone Private Wealth Solutions, offers in an interview with ThinkAdvisor.
Blackstone is the largest asset manager focused on alts, with more than $1 trillion in assets under management, according to Solotar. The firm offers an array of alternative investments in a host of asset classes, including private equity, private real estate, private credit and infrastructure.
Solotar, a 38-year Wall Street veteran, joined Blackstone in 2007. Over the past six years, she has helped to quadruple the size of the asset manager’s private wealth business.
“In general,” she believes, “advisors should consider alts for their clients’ portfolios.”
The investments’ benefits include enhanced yields, higher returns, tax efficiencies and diversification from public stocks and bonds.
In the interview, Solotar cites the best current opportunities in alts and emphasizes that advisors would be wise to educate themselves about these investments to help clients better understand them.
Here are excerpts from our conversation.
THINKADVISOR: What’s the significance of individuals having greater accessibility to alternative investments?
JOAN SOLOTAR: It gives clients more tools to invest in — in the same way that an institution would have them.
The illiquidity premium is the advantage. There’s potential for a higher return — in exchange for that, you’re giving up liquidity.
What benefits, besides greater returns, do alts bring to clients?
Typically, higher yield, less volatility, greater diversification, more tax efficiency. Private equity gains are generally in the form of capital gains, which have a lower tax rate.
Broadly, how do advisors and clients judge whether an alt is right for a portfolio?
Each of the alt asset classes have to be looked at against their equivalents: private credit vs. public fixed income, private equity vs. public equity, private real estate vs. publicly traded real estate.
What prompted firms to make alts more accessible to non-institutional investors?
We set up Blackstone Private Wealth Solutions 13 years ago. We were already distributing some of our institutional funds to large firms and families and were asked by some of the bigger firms for more access.
We thought about what we’d need to really serve those clients well, and that was to build out an end-to-end business. The logic was: If institutional investors, including pension funds, can benefit from alts, why can’t individuals?
So should financial advisors recommend alts to their clients?
In general, advisors should consider alts for their clients’ portfolios because, depending on the asset class, alts can enhance yield, provide tax advantages, provide higher returns over time in the case of private equity, provide diversification from public stocks and bonds [and more].
But it’s impossible to make these [alt] decisions in isolation. You have to look at the portfolio and where the person is in their life cycle. For example, are they retirees? Are they savers?
What categories of alts does Blackstone offer?
We cut across all the alts, including private equity, private real estate, private credit, infrastructure, growth equity, life sciences, energy transition, hedge funds — and there are a lot of subcategories within those.
What are good opportunities right now?
In terms of where we’re seeing investment opportunities, today the most prolific have been in private credit. And we’re seeing a pickup in private equity.
Relative to prior years, it’s been fairly muted in other areas.
