Financial advisers are seeing an uptick in demand from their clients for private assets and are planning to increase allocations, but challenges to including them in portfolios remain, research from Natixis Investment Managers (IM) has found.

The study showed that more than half (56 per cent) plan to include private assets in portfolios within the next five years as a result of increased investor demand.

The same proportion (56 per cent) of advisers said that private assets had improved outcomes for their clients.

However, the research also identified barriers to private asset allocations, with 65 per cent of advisers stating that the biggest challenge was the difficulty of building a portfolio of private assets at scale.

Additionally, more than seven in 10 (72 per cent) respondents felt that clients did not understand the holding period that comes with private investment.

Over two-thirds (68 per cent) reported that an increased availability of liquid products would result in them recommending private assets to clients more often, with 40 per cent saying that interval funds were “essential” to helping clients access private assets.

They foresaw new structures that “hold promise” for retail investors and 60 per cent believed that evergreen funds were a good way to incorporate private assets in client portfolios.

Natixis IM also identified that advisers had found it challenging to increase fixed income allocation in client portfolios, with 89 per cent saying they had found it difficult.

However, with rates at 15-year highs, 43 per cent of global advisers said it had been hard to show clients the benefits relative to cash, while 39 per cent indicated that it had also been difficult to show clients the benefits of upping fixed income allocations in general.

What makes it more challenging, according to nearly four in 10 (39 per cent), was their clients’ knowledge, or lack thereof, about fixed income.

Alongside this knowledge gap, 37 per cent of respondents’ clients preferred other products, such as money markets and certificates of deposit over bonds, while 36 per cent stated that, with returns on cash at a 15-year high, clients did not have the risk appetite.

Public debt was the biggest risk concern for 64 per cent of advisers, according to the research, with 74 per cent saying that persistently high rates made public debt more unsustainable.

More than four in 10 (42 per cent) were concerned about the risk of clients chasing returns by trying to time the market, and 29 per cent warned that investors should be aware of unrealistic expectations.

“Over the past five years markets have delivered swift downturns and record highs, inflation spiked to its highest in 40-years, and interest rates shot from near zero to 5 per cent or more,” commented Natixis IM head of UK sales, Darren Pilbeam.

“Although change may not always be as dramatic, advisers have been mastering the art of managing portfolios through turbulence and must continue to adapt to the speed and frequency of changing macro and market factors.”

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