In the face of escalating inflation, Americans are increasingly longing for the retirement security once provided by pensions, a sentiment reflected in a survey revealing widespread concerns about the reliability of existing retirement plans such as 401(k)s.

 This shift away from traditional pensions stems from their expense and risk for companies, leading to the widespread adoption of defined contribution plans like 401(k)s, which place the onus of retirement planning on employees. However, the recent surge in inflation has exposed the vulnerabilities of 401(k)s, particularly for older adults nearing retirement. 

To address this, there's a growing interest in annuities, which offer a guaranteed income stream and can be seen as a modern iteration of traditional pensions. Annuities, available in various forms including fixed and variable, provide retirees with a way to insure their income stream, offering stability in an uncertain financial landscape and potentially bridging the gap left by the decline of pensions and shortcomings of 401(k)s.

Finsum: Annuities can offer a more secure return and replace the void left by pensions for many Americans.

Invesco recently completed its Q1 update on the landscape for alternative assets. In terms of private credit, the firm sees an improving environment due to a resilient economy, inflation trending lower, rate cuts later in the year, and expectations of liquidity events in private equity. Overall, it sees investors able to get attractive yields without compromising on credit quality. It expects overall yields to remain between 11 and 12% for the year for private credit investors. 

The firm sees opportunity in distressed debt and special situations to lend to ‘good companies’ with weakened balance sheets. It believes the higher rate environment has hurt smaller companies and that many of these companies are operationally sound but are ‘liquidity-constrained’, creating an opportunity to invest at attractive valuations. 

In terms of real assets, Invesco notes that fundamentals remain strong, for the most part, despite lower transaction volume and stresses created by the high-rate environment. It’s particularly bullish on real estate due to improving monetary conditions, which should support transaction volumes. Even during the downturn, income fundamentals remained robust across most categories. The firm sees sound fundamentals in most areas of real estate except for offices and overbuilding in some markets. Additionally, recent economic data has been supportive of a ‘soft landing’ for the economy, which is also bullish for real estate. 

Finsum: Invesco shared its thoughts on alternative assets. Overall, it’s bullish on the asset class and sees the most upside for real estate and private credit due to its positive forecast for the economy in 2024.

2024 has proven to be a much more challenging year for financial markets than 2023. Entering the year, the consensus was that the economy would continue to weaken, inflation would keep trending lower, and the Fed would be proactive and aggressive in cutting rates. 

Clearly, this has not happened. Amid this new paradigm, allocators are understandably looking to make appropriate adjustments to portfolios. Here’s why they should consider increasing exposure to active strategies.  

With fixed income, active investing can allow for precise exposure to a specific theme. For instance, those who don’t believe that inflation will keep trending lower may want to have higher exposure to short-duration debt. Another benefit is that active managers are able to quickly change strategies depending on how events develop, which makes them particularly useful in the current environment. This means that holdings can be optimized for the current environment of ‘higher for longer, but then managers can quickly pivot once the Fed actually starts cutting rates.

Active strategies can also be useful in other asset classes, such as international equities, which currently appeal to many investors due to favorable valuations relative to US equities. With active management, there is more focus on bottom-up, fundamental-focused analysis, which can result in more alpha in less efficient markets. Further, it can also lead to more diversification and risk management than is typically found with passive investing.

Finsum: The first quarter of 2024 has had several unexpected developments. Here’s why allocators should consider active management to navigate this tricky environment. 

Commonwealth Financial Network has forged a strategic alliance with Succession Link, a specialized fintech platform focusing on M&A and succession planning, to revolutionize practice management. Through the integration of Succession Link's bespoke solution, advisors can now seamlessly identify compatible continuity and succession partners. 

The imperative for advisor succession planning is underscored by Cerulli Associates, forecasting the retirement of 100,000 advisors overseeing $10 trillion in client assets within the next decade.

Commonwealth's consolidated platform not only streamlines access to practices for sale but also furnishes advisors with valuation tools, fostering succession planning activity. Succession Link's suite of features, including compatibility scoring and advanced messaging functionalities, aligns with the overarching goal of empowering financial professionals to navigate succession challenges adeptly.

Finsum: Technology tools will be changing the game in advisor recruiting as demographic shifts begin to hit the industry.

iCapital, headquartered in New York and a sizable user base of over 100,000 financial advisors and 560 asset managers, has rolled out its latest offering, the portfolio construction tool, on the iCapital Marketplace. 

Dubbed Architect, this tool equips advisors to delve into alternative assets such as private equity and hedge funds, alongside structured investments, to fine-tune client portfolios. Architect boasts capabilities to simulate past performances, discern macroeconomic influences on portfolio returns, and align future projections with client objectives. 

This initiative aims to bridge the gap between traditional portfolios and alternative investments, historically kept separate. Now accessible to a broader audience, including users via a collaboration with Morningstar, Architect underscores iCapital's commitment to empowering advisors with flexible tools for better client service.

Finsum: Easy access to alternatives in portfolio construction gives clients better access to uncorrelated returns.