Are Model Portfolios Key to Alt Adoption?

Get ready to hit the runway.

Despite the White House pushing for expanded access to private markets, many advisors view them as overly complex or unnecessary. SEC Commissioner Caroline Crenshaw went even further, calling broader retail access to all alternatives an “irresponsible departure from foundational pillars of the securities laws.”

Customizable model portfolios, however, may offer a path around such skepticism, some asset managers believe. The products allow advisors to spend less time sifting through stocks, bonds, mutual funds and ETFs and more time focused on financial planning. For proponents, that makes them a natural home for alternatives.

“In the past, private markets have been difficult to access and time-consuming to implement for advisors,” said Karl Desmond, client portfolio manager at Invesco, adding that advisors aren’t necessarily against private markets, they just want them simplified.

In Vogue

While every client is different, the traditional 60/40 stock-bond portfolio remains a baseline. Invesco, however, expects that framework to evolve as alternatives become more accessible. “We see the ideal mix as something like 61/34/5,” said Alessio de Longis, Invesco’s head of asset allocation. That final slice might include liquid strategies such as managed futures and long-short equity, as well as more illiquid assets like private equity and private credit.

Over the past year, major firms including Fidelity, BlackRock and JPMorgan have added alternatives to their model portfolios. The move reflects how widely models are already used:

• Roughly three-quarters of advisors rely on third-party model portfolios today, according to Morningstar. 
• Broadridge projects assets in US model portfolios will surpass $13 trillion by 2029, up from about $8 trillion today.

Strike a Pose. Interestingly, de Longis noted that family offices, which often allocate heavily to private markets, use model portfolios in the opposite way: to simplify public market exposure for ultra-high-net-worth clients. Desmon added that even firms with large investment teams of 10-plus CFAs find use for model portfolios for smaller accounts.