The profitability of alts for investment managers and product originators promises that the deluge of alternative investment opportunities will continue.
On Wall Street finds in this months cover story that advisors will increasingly hear the pitch that alts are what their clients need to navigate the investment landscape. With stocks high and interest rates likely to rise, the argument goes, alternatives deserve a bigger place in many portfolios, writes contributor Margo Epprecht.
That means there will be more of an imperative to sift through the array of private placements and other sophisticated investments, including long/short credit strategies, that can be slipped in to replace part of a clients stock or bond holdings. Wirehouses have even launched advisor education programs to explain why portfolios can benefit from use of the products.
Epprecht says advisors will need to have an even more intimate knowledge of alternatives and their impact. Advisors looking to replace part of a clients traditional portfolio with alternatives should know that some research shows that you have as much chance of hurting your clients risk-adjusted performance as helping by adding liquid alts, she says.
Advisors who are skeptical of alts and their promise of risk-adjusted returns in any market environment arent alone. Epprecht interviews David Swensen, chief investment officer of Yale Universitys endowment and architect of Yales aggressive use of alternatives, and finds he too has his doubts. I worry that these alternatives were talking about will be another high-cost way for individual investors to underperform.
To hear Keith Glenfield, head of Bank of America Merrill Lynchs Alternative Investments Group, explain it, The level of due diligence on all strategies is critical. So, advisors: time to dig deep.