Key Points
- Millennials favor alternative investments — such as venture capital and private markets — as a way of capturing innovation and growth opportunities, particularly in tech.
- Goldman Sachs Asset Management data shows alts now make up about 20% of millennials’ portfolios, while allocations to traditional equities are lower than older age groups.
- As private markets funds chase retail dollars, investment pros acknowledge that more work may be needed on investor education, including among millennials.
Millennials are pouring more of their money into alternative assets, such as private equity and venture capital, in a seismic shift which marks a break from long-established investment trends. October analysis by Goldman Sachs Asset Management shows millennials’ appetite for growth opportunities — particularly around technology and healthcare developments within private markets and venture capital — is driving this push into alternatives. Alternative investments, which also include real estate and hedge funds, now make up about 20% of millennials’ investment portfolios on average, according to Goldman data. That’s a significantly higher portion compared to alts exposure among Gen X and Boomers, which totaled about 11% and 6%, respectively. The study, which surveyed 1,000 high-net-worth investors in the U.S. on their investment plans and allocation preferences, showed that millennials are more comfortable allocating capital to riskier assets than other age groups. Over half (54%) of millennial investors surveyed identified access to growth industries as the primary driver for adding exposure to alternatives, more than double those who named diversification as the key reason for an alts investment (27%). Millennials recognize that a lot of technological innovation and growth is occurring within the private markets arena — and now they want a piece of the action, said Kristin Olson, global head of alternatives for wealth at Goldman Sachs Asset Management. “If you take a step back, millennials have grown up during a period of rapid technological innovation — from startups that became household names to what we’re seeing now in terms of AI and other sectors,” Olson told CNBC. “It makes sense that this generation values getting access to alternative investments to tap into this economic growth.” On the flipside, the cohort — those born in the years between the early 1980s and mid-1990s — have far fewer holdings in traditional assets, such as publicly-listed stocks. The data showed that just over one-quarter (27%) of millennials’ portfolios consist of equities. That’s markedly lower than the 43% among Gen X — those born between the mid-1960s and early 1980s — and 48% among post-World War II Boomers. Millennials grew up amid sporadic bouts of economic upheaval, including the dotcom crash, the 2008 Global Financial Crisis and the 2011 eurozone sovereign debt crisis, and therefore “definitely” see public equities as riskier than other generations, according to Olson. “I think they are also more entrepreneurial in nature and thus the investment themes found in private growth or venture companies may resonate more with them,” Olson explained via email. That said, she also acknowledged that there is “more work to be done” on educating millennials on alternatives, as the generational divergence reshapes how financial advisors engage with different age groups. Mark Dowding, chief investment officer of RBC BlueBay’s fixed income platform, said there is a growing sense that private debt and private equity firms are now channeling more of their products towards the retail wealth space, as institutional buyers reach their exposure limits. “Where I’m worried in areas like private assets is that you may end up with certain strategies being mispackaged to the wrong sort of audience,” Dowding told CNBC in an interview. Separately, he noted how speculative flows among retail investors, and appetite for investments that “seem new, different or alternative” has helped drive crypto, AI stocks and gold prices. “I see that allure drawing in perhaps more of your millennials than your old-timers, who may be more set in their ways in terms of what they’re looking for, in terms of the assets that they invest in.” He added: “Where you have lost money badly in a bubble before, you become much more wary if you think a bubble is forming again. If you’re young enough not to have the memory of losing your shirt in a bubble crash then you’re not programmed that way. It feels to me like every generation has its own bubble. You have to learn your lesson somewhere.”