Important points
Millennials are pouring more money into alternative assets such as private equity and venture capital, in a seismic shift that marks a break from long-established investment trends. An October analysis by Goldman Sachs Asset Management shows that millennials’ desire for growth opportunities, particularly developments in technology and health care in the private market and venture capital, is driving a move toward alternatives. Alternative investments, which also include real estate and hedge funds, now account for about 20% of millennials’ investment portfolios on average, according to Goldman data. This is a significantly higher rate compared to the alternative consumption rates of Generation X and Baby Boomers, who totaled approximately 11% and 6%, respectively. The study, which surveyed 1,000 high-net-worth U.S. investors about their investment planning and allocation preferences, found that millennials are more comfortable allocating money to riskier assets than other age groups. More than half (54%) of millennial investors surveyed cited access to growth industries as a key driver for adding exposure to alternatives, more than double the number of investors who cited diversification as a primary reason (27%). Kristin Olson, global head of wealth alternatives at Goldman Sachs Asset Management, said millennials recognize that a lot of the innovation and growth is happening in the private markets realm, and now they want to get in on the action. “If you take a step back, millennials have grown up in an era of rapid technological innovation, from startups that became household names to what we’re seeing now in AI and other fields,” Olson told CNBC. “It’s no surprise that this generation values access to alternative investments to take advantage of this economic growth.”However, this generation, born between the early 1980s and mid-1990s, owns far fewer traditional assets such as publicly traded stocks. Data shows that just over a quarter (27%) of Millennials’ portfolios are made up of stocks. This is significantly lower than the 43% of Generation X (those born between the mid-1960s and early 1980s) and the 48% of post-World War II baby boomers. Olson said millennials “definitely” think public equities are riskier than other generations because they grew up amid sporadic economic upheavals, including the dot-com crash, the 2008 global financial crisis and the 2011 euro zone debt crisis. “I think they are also more entrepreneurial in nature, so investment themes found in private growth and venture companies may resonate with them,” Olson explained in an email. That said, he acknowledged that “more work needs to be done” in educating millennials about alternatives, as generational differences are reshaping how financial advisors interact with different age groups. Mark Dowding, chief investment officer of RBC BlueBay’s fixed income platform, said there was growing recognition that private debt and private equity firms were directing more products into the retail wealth space as institutional buyers reached their limits on exposure. “What I worry about in areas like personal finance is that certain strategies may be inadvertently targeted to the wrong kind of audience,” Dowding said in an interview with CNBC. Separately, he noted how the flow of speculation among retail investors and their appetite for investments that are “new, different, or seem alternative” is helping to drive up the prices of cryptocurrencies, AI stocks, and gold. “I think that appeal is probably drawing more millennials than older generations. Millennials may be more set in their ways in terms of what they want and the assets they invest in.” “You become even more wary when you think that a bubble is forming again. If you’re young enough to not remember losing your shirt when a bubble bursts, you’re not programmed that way. I feel like every generation has their own bubble. They have to learn their lessons at some point.”
