To understand the current Alternative Investment landscape it is important to understand how we got here.
Alternative investments were untouchable for decades, unless you were Warren Buffet or an Ultra High Net Worth Individual (UHNWI). Having 10's of millions of dollars net worth would not qualify you. Why? Because fund managers wanted to maximize their AUM with as little of relationships/investors as possible. The front office game at the time was very personalized. Middle and back office tasks were concentrated into paper processes and it was considered cutting edge for the rare firm to adopt some type of Client Relationship Management (CRM) tool or even Excel. They didn't really need to worry about this at the time, as volumes were at an undetectable level.
Eventually, the idea of a feeder fund was introduced and unspecified quantities of High Net Worth Individuals (HNWI), meeting Qualified Purchaser (QP) and/or Accredited Investor (AI) standards, were able to band together and look like Ultra High Net Worth Investors. This would give more people access to alternatives, but this also introduced a lot of complexity across the lifecycle of the transaction. This would also hurt the ability of the fund manager to hold direct relationships with its customers.
The end result was a massive increase in headcount and costs for operating these complex feeder funds.
With investor interest growing and volumes picking up, technology was introduced to allow fund managers to accept lower minimums and grant investors direct access to their funds (sunsetting feeder funds). As a result, large service organizations were made unnecessary and companies like CAIS, iCapital, Moonfare, etc. became standard solution providers.
Portfolio allocations to alternatives are rising yearly and we see this trend continuing for the foreseeable future. Transaction volumes will continue to grow. This results in more investment in technology to smooth out the complex trade lifecycles.
As investment minimums continue to shrink, we are likely to see some funds hold a line at some point. Even if they do, this won't matter because just as feeder funds once made investors look larger, we will likely see this again, but with the new twist of using this to define synthetic fund of funds. This means investors will eventually have similar diversification that they see in public market Exchange-Traded Funds (ETF), but across private market funds.