Displaying items by tag: portfolio management

Alternative investments can add value to portfolios by boosting returns and leading to increased diversification according to a recent UBS white paper on the subject. Within the category, it favors specialist credit hedge funds, macro hedge funds, secondaries in private equity, and specific types of private debt. However, it does note that investors should be aware that there is a tradeoff in terms of reduced liquidity. 


The firm recommends a 20% allocation and believes that it could lead to an annual increase of 50 basis points in the long term. It’s increasingly of interest given the asset class’s strong performance in 2022 when stocks and bonds both delivered double-digit, negative returns. In contrast, most diversified alternatives’ indices saw performance between -6% and +17%. In terms of forward returns, the bank forecasts return between 6% and 11% over a full business cycle.


In terms of specific strategies, UBS recommends specialist credit hedge funds which focus on differences between strong and weak companies. It also favors secondaries in private equities and notes some attractive discounts in the space. The bank also sees upside to private debt given that yields are around 12% with lower default risk than high-yield credit. 

Finsum: UBS is bullish on alternative assets. It believes that the asset class can boost returns while also increasing diversification. 


Published in Wealth Management
Saturday, 02 December 2023 09:40

Alternatives Can Help Differentiate Your Practice

According to a report and survey conducted by Cerulli Associates, Invesco, and the Investment & Wealth Institute, most advisors believe that alternative investments can help differentiate their practices from competitors, recruit high net worth clients, and help with consolidating and recruiting assets. Yet, half of the advisors surveyed report an allocation to alternatives that is less than 5% despite self-reporting that the optimal allocation was 13%. 


Most decisions to allocate to alternative investments are driven by advisors given that clients are often unaware of these options and their benefits. Many alternative investments are only available to retail investors through advisors such as investing in private markets. This can also help in recruiting clients who may be interested in these types of investments in addition to better returns, income, and diversification for clients. 


The survey results also showed that 56% of advisors see increasing allocations to alternatives due to increasing liquidity, and 52% believe that increasing transparency will also lead to more allocations. Some of the drawbacks of the asset class are high levels of complexity and less liquidity that require advisors to spend time in conducting due diligence especially if they are recommending it to clients. 

Finsum: According to a report on advisors and their perspectives on alternative investments, most advisors are underexposed to the asset class despite it offering specific benefits to clients and advisors.


Published in Wealth Management

UBS conducted a poll of wealthy clients, working with a specialized portfolio advisory group. In response, it has increased its recommendation for exposure to alternative asset classes such as private equity, private debt, real estate, structured products, and hedge funds from 16% to 22%. Endowments and large single-family offices have already increased allocation to private markets, but wealthy investors are making up ground. 


This is due to an increase in the number of options which allow clients to immediately invest in private markets with lower amounts and less restrictions on withdrawals. According to Daniel Scansaroli, the head of portfolio strategy in UBS’ CIO Americas office, “The concept of investing in private markets is not new to our clients, but the accessibility of the market has changed in the last couple of years with what many of the private sponsors are calling a democratization.”


Currently, the firm recommends an allocation of 30% to private markets, 30% to bonds, and 40% to stocks and believes this is the new benchmark. It favors this over the traditional 60/40 portfolio as it would have generated an incremental 1.4% in incremental returns even after accounting for fees. 


It believes that private markets offer more opportunity than public markets due to the ‘illiquidity premium’, assuming that investors can remain patient. Over multiple timeframes, private equity, venture capital, private credit, and real estate have shown to outperform the S&P 500. 

Finsum: UBS conducted a survey of its wealthy clients and found that they are looking to increase their allocation to private investments. 


Published in Wealth Management

In a CNBC interview, CAIS CEO Matt Brown commented on the alternative asset market. He believes that a major factor behind the current growth of the category is due to increased access, highlighting venture capital, hedge funds, private real estate, and private equity. 


He forecasts that alternative exposure will continue to increase among investors and advisors along with greater access. He also believes that the traditional 60/40 portfolio will shift and become a 50/30/20 mix between stocks, bonds, and alternatives. This reallocation will result in $10 trillion moving into alternatives over the next few years according to Brown. 


CEO Rob Sechan of NewEdge Wealth also added that alternative investments provide diversification and a better chance of achieving targeted returns especially in an environment of falling returns for stocks and bonds. 


He believes that consistent private market performance is due to greater operating and financial leverage while public securitie performance is too economically sensitive. Investors in private markets are also able to take advantage of dislocations in public markets by buying discounted assets with a long duration during selloffs. Recent examples include the European debt crisis and Silicon Valley Bank. 

Finsum: Alternative investments are becoming a major asset class and increasingly a larger allocation for some investors and advisors.


Published in Wealth Management
Wednesday, 18 October 2023 11:00

Why Alternatives Make Sense In This Economy

Alternative investments encompass everything excluding equities, fixed income, and cash or money markets. According to Angie Spielman,the founding partner and a financial advisor at Manhattan West, this is a great time to invest in alternatives, and she recommends a 33% allocation for her clients assuming that it fits their risk profile. 


Demand for alternatives is growing given that the asset class outperformed in 2022 while both stocks and bonds posted negative returns. Additionally, it’s proven to be a source of positive returns and diversification. 


Spielman sees the new benchmark portfolio as being equally divided between equities, bonds, and alternatives. Although, she warns that this mix is not appropriate for more risk-averse clients. She also believes that private markets will outperform public markets over the next decade. Within the asset class, she favors private equity, venture capital, real estate, and private debt. 


In addition to benefiting existing clients, providing access to these types of investments can also attract prospects who are more risk-tolerant and seeking diversification. She recommends easing new clients into these types of investments with smaller sums at the beginning. Alternative investments do typically have higher fees and tend to have less liquidity and transparency than traditional options. 

Finsum: Alternative investments are growing in popularity and offer specific benefits to advisors and clients. 


Published in Wealth Management
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