Alternative Investments
Key takeaways
- Alternative investments have grown to an essential asset class for institutional investors and private wealth managers.
- They play a crucial role in modern asset allocation. Alternative Investment can either help provide higher income levels, enhance the return profile, or reduce an investor’s portfolio volatility.
- Besides, some alternative asset classes behave very differently than typical stock and bond investments and can, therefore, reduce the correlation across asset classes and act as a very valuable portfolio diversifier.
- There exists a wide range of alternative asset classes. The most popular ones include private markets (private equity and private debt), real estate, commodities and hedge funds. Each asset class has its benefits and characteristics.
Alternative Investments build a better tomorrow
Alternative investments have grown to an essential asset class for institutional investors and private wealth managers. Alternatives play a crucial role in modern asset allocation. They can either help provide higher income levels, enhance the return profile, or reduce the volatility of an investor’s portfolio. Hence, the asset class can be beneficial for a portfolio in a variety of aspects.
The importance of alternative investments has only grown over the last few years, particularly since the investment outlook for “traditional” asset classes has become less attractive, evidenced by low interest rates and high volatility in equity markets, as just witnessed in Q1 2020 or throughout the year of 2022.
Besides, some alternative asset classes behave very differently than typical stock and bond investments. They can, therefore, reduce the correlation across asset classes and act as a valuable portfolio diversifier.
There exists a wide range of alternative asset classes. The most popular ones include private markets (private equity and private debt), real estate, commodities and hedge funds. Each asset class has its benefits and characteristics.
Private Markets
Private Markets are becoming an increasingly important role in nowadays portfolio allocations. The investment opportunities in liquid traditional asset classes are more and more challenging. In the search for Alternatives, Private Markets continues to evolve. Driven by new regulation, adapted process and value proposition, Private Markets help create a real alternative for returning opportunities and diversification. A longer-term investment horizon helps identify opportunities apart from the illiquidity constraints inherent when investing in Private Markets.
Hedge Funds
Hedge funds are another well-known alternative asset class, which trade relatively liquid assets. They exist for many decades and have become a popular asset class with a substantial fraction of the asset management industry with a total AuM of around USD 4 trillion.
These funds employ sophisticated trading strategies and extensive portfolio construction and risk management techniques to improve performance, such as short selling, leverage and derivatives. Different from traditional “long-only” investments, many hedge fund strategies have the goal to generate attractive returns regardless of whether markets are rising or falling (“absolute return”). Although hedge funds get widely considered risky investments, the expected returns of many hedge fund strategies are less volatile than traditional funds because of the use of hedging techniques or their differentiated trading style.
Low correlation
There exists an immense variety of strategies within the hedge fund world. Therefore, they can differ from each other regarding their investment focus, risks, volatility and expected return profile. We have a natural focus on hedge fund strategies within an efficient portfolio construction context with a return outlook that exceeds the return expectations for classic bond portfolios while showing limited correlation to traditional markets such as equities.