Displaying items by tag: alternatives

In an article for the Globe and Mail, Tom Czitron shared some thoughts on why investing in alternative asset classes could get more challenging over the next decade. He defines alternatives as any asset that is not an equity, bond, or a money market fund.

The most well-known examples are hedge funds, private equity, natural resources, real estate, and infrastructure. Typically, there is low correlation with stocks and bonds which increases diversification and long-term returns. 

Yet, there are some challenges as returns can widely differ. Additionally, there is less coverage and data regarding the alternative investments unlike stocks and bonds where there is Wall Street coverage, regulatory disclosures, and publicly available information. For advisors, this means that more judiciousness is required in terms of selection. 

Another complicating factor is that alternative investments are generally illiquid. While this does likely contribute to the asset class’ enhanced returns, it means that funds cannot be easily withdrawn with long lock-up periods in many cases. An additional risk is that many alternative investments deploy large amounts of leverage which mean there is a greater risk of a blow-up in the event of a rate shock or bear market. 

Finsum: Alternative investments outperformed stocks and bonds over the last decade. Yet, there are some risk factors that investors need to consider.

In a Forbes article, Brian Hundler discussed the growth of alternative investing in recent years and the strong momentum for this nascent asset class. He attributes technology and the globalization of markets as major factors for making these investments available to a wider category. 

Alternatives investments encompass private equity, hedge funds, real estate, commodities, and cryptocurrencies. They tend to be less liquid and riskier but also have the potential for higher returns. For investors with a higher risk profile, they can certainly be part of a diversified portfolio. 

Many cite the past decade of zero interest-rate policy as the driving force behind the growth of alternative investing as it forced many investors to get creative and enhance risk in the search for yield. Another factor is increased demand for diversification as alternative investments have low correlations with traditional assets. 

The final piece in the growth of alternative investing is that technology has made these investments accessible to smaller investors, while they were only previously available to high-net worth investors due to logistical and regulatory hurdles. 

Finsum: Alternative investments are booming. Read more to find out why, and how it can enhance returns and diversification.

In an article for InvestmentNews, Palav Ghosh discussed the growth in capital allocated to alternative investments by global asset managers. There was a 10% increase from 2021’s $130 billion to $144 billion in 2022 according to a report from Vidrio Financial.

Some of the largest destinations for this capital were private equity and venture capital which accounted for $61.6 billion. This was a slight drop off from $64 billion in 2021 albeit not surprising given the struggles of these two asset classes. However, inflows into credit and real estate remained the same at $27 billion.

Interestingly, there was a more than 100% increase of inflows into hedge funds which went from $8 billion in 2021 to $16.6 billion in 2022. Inflows into infrastructure and real assets also slightly increased to $7.3 billion and $4.9 billion, respectively.

Some of the top allocators to alternative investments were the New York State Common Retirement Fund, the State of Wisconsin Investment Board, and the California State Teachers Retirement System.

Overall, allocators are moving away from the typical 60/40 model and closer to a balanced mix of private and public investments.

Finsum: Allocators are increasing exposure to alternative investments. This isn’t surprising given the volatility for stocks and bonds over the past year. 

In an article for InvestmentNews, Jenny Zhang of Beyond Investments laid out a quick guide for advisors to evaluate alternative investments. It’s not surprising that interest in the asset class has soared in recent months given the various macro headwinds and poor performance for stocks and bonds in 2022. 

Another factor leading to increased interest in alternative investments is that credit is tightening up amid a slowing economy, high-profile bank failures, and a hawkish Fed. This will force many companies to seek capital in private markets, leading to more opportunities for investors in this niche. 

From an advisor perspective, it’s quite challenging especially as there is more risk and less transparency around alternative investments. The key is to understand that the asset class can be part of a diversified portfolio. 

In terms of fundamentals, advisors should first focus on a client’s specific needs and risk tolerance. Then, they should understand the size of the total market and the borrower’s collateral in the vent of a default. Additionally, two more important factors are the capital structure of the deal and its time horizon.

Finsum: Alternative investments are rapidly growing due to the uncertainty of today’s environment. Here is a quick guide on how to evaluate these investments.

According to the third annual Alternatives Watch (AW) Research Investor Compendium commissioned by Vidrio Financial, there was a strong uptick in the amount of alternative investment mandate activity across some of the largest institutional investors. In 2021, AW's second annual compendium tracked a total of $130 billion in new capital across more than 900 individual institutional investor mandates from 50 of the top alternative allocators. That figure jumped to $144 billion in 2022, an increase of over 10%, across more than 1,000 individual mandates. There was also an increase in investor interest across infrastructure and real asset strategies to $6.9 billion and $4.9 billion, respectively, as those strategies act as inflation hedges. Other key findings include a muted slowdown in private equity assets, while there was a pick-up in activity in hedge funds as large institutional players sought to purchase risk-mitigating assets throughout the year. In addition, total private equity and venture capital mandates accounted for over half the mandates in the compendium and were spread out across the world, as investors embraced life sciences and technology sectors. Mazen Jabban, Chairman and CEO, of Vidrio Financial, stated, "As we saw in this year's Compendium performance data, Vidrio Financial continues to observe alternative asset classes growing in importance for institutional investment teams who work to take advantage of illiquidity premiums in the private markets while also seeking greater transparency into these types of investments."

Finsum:According to the third annual Alternatives Watch Research Investor Compendium, there was a 10% uptick in the amount of alternative investment mandate activity across some of the largest institutional investors.