Reasons for Investors to Consider Alternative Assets

In the past few months I've had some of the world's leading Chief Investment Officers join me on "The 7 in 7 Show with Zack Ellison", a podcast that is aired each week on YouTube, Apple Podcasts, and Spotify, and about a dozen other media platforms. One theme that nearly every single CIO and investment expert has brought up is the need to have a diversified investment portfolio that includes alternative investments. In episode 11, Jane Leung, former CIO & Head of Modern Family Office at Silicon Valley Bank, explains the benefits of alts for high net worth investors. Alternative investments provide an opportunity to diversify investment portfolios beyond traditional stocks and bonds (and the 60% stock/40% bond portfolio that has struggled recently). These investments often have low correlation with the broader financial markets, meaning their performance may not move in tandem with traditional assets. By diversifying into alternatives, investors reduce the overall risk of their portfolio and enhance its potential for returns. Alternative investments reduce risk by offering downside protection during times of market volatility. Some alternative strategies, like venture debt, have floating interest rates and stable cash flows and act as a hedge against inflation and rising interest rates. Others, such as managed futures and hedge funds, often aim to protect capital during market downturns, providing a cushion against losses. Alternative investments also enhance portfolio customization by allowing investors to tailor their portfolios to specific investment objectives and risk preferences. Whether an investor is seeking income generation, capital appreciation, risk reduction, or all of the above, alternative investments offer a wide range of options to meet individual goals. #investing #alternativeinvestments #wealthmanagement #venturedebt CAIA Association, Applied Real Intelligence LLC ("A.R.I.")

If you took the weighted average sum of the standard deviations of stocks within the S&P 500, you'd get an annualized standard deviation of 37.5%. [e.g. Apple is 7.58% of the SP500 and it's standard deviation is 44.81% (44.81% * 7.58% = 3.405%), etc...] BUT, the annualized standard deviation of the S&P 500 is only 16.4%. This means the uncorrelated nature of each individual stock to each other reduces portfolio risk by more than 50%. You can keep adding stocks to this portfolio, but you are not likely to reduce the stock risk any further. What is needed are uncorrelated assets OUTSIDE of stocks that diversify the inherent systematic risks of stocks as an asset class. Liquid alternatives are the best option imo. Not because liquid alternatives are expected to outperform the S&P 500. That is not the point. Certain liquid alternatives can be relied upon to have more negative correlations to equities than bonds or commodities alone, and can therefore be more efficient diversifiers. The key is to evaluate liquid alternatives in relation to your portfolio, not as a standalone investment vs. the S&P 500.

Bain & Co -- Avoiding Wipeout: How to Ride the Wave of Private Markets "Investor demand has . . . with other institutional investors expected to increase their allocation to alternative assets by a 10% CAGR from 2022 to 2032, which will cause AUM to reach at least $60 trillion. Sovereign wealth funds, endowments, and insurance funds are seeking higher yields due to public market volatility and declining returns. Similarly, rising contributions from retail investors will cause the retail AUM share to rise from 16% in 2022 to 22% in 2032. Individuals are drawn to the alternative asset market by the prospect of diversification and higher returns and are willing to tolerate lower liquidity. Private markets appeal to more wealth and asset management firms as profit margins shrink elsewhere. Private assets constitute a much larger market than public assets and offer potentially higher yields, diversification, and in cases such as real estate, a hedge against inflation. Stepping back, we observe a convergence in strategies among traditional and alternative asset managers, with many gearing up to become full-service providers across asset classes, investor types, and value chain positions." https://lnkd.in/e9P6QxiQ