Frequently we hear investors state that there is no alternative but to stay exposed to risk assets at the expense of low yielding safe assets. While this strategy worked well throughout most of the economic cycle, as the cycle ages we believe investors should be considering options to increase the resilience of their portfolios in order to be prepared for an eventual downturn.
We acknowledge that this is easier said than done in a world where core government bond yields are low, particularly here in Europe. The scope for government bond prices to rise to offset any decline in stock prices is more limited than it was in previous downturns.
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Cash in Europe—with negative real returns—is a similarly unattractive proposition. As a consequence, investors might need to rethink diversification and expand their horizon beyond traditional asset classes in order to increase the resilience of their portfolio while generating positive real yields. The good news is that there are alternatives. Alternative strategies are usually defined as investments in assets other than stocks, bonds and cash. They include investments in private assets which are not publicly listed or investment strategies that use non-traditional approaches, such as the ability to benefit if stocks fall.
Alternative Assets and Strategic Allocation
Exhibit 1—taken from our recent publication Guide to Alternatives —shows the yield on offer in many of the core alternative markets. There is of course no free lunch. The higher yield compensates investors for a lower level of liquidity in these markets. However, this may not be a problem for longer-term investors that can hold assets through the cycle. Morgan Asset Management. Global Transport: Levered yields for transport assets calculated as the difference between charter rates rental income , operating expenses, debt amortization and interest expenses, as a percentage of equity value.
Yields for each of the sub-vessel types above are calculated and respective weightings are applied to arrive at the current levered yields for Global Transportation; Preferreds: BAML Hybrid Preferred Securities; U. Treasury yield; U. Euro Govt. Guide to Alternatives — 2Q Data as of March 31, Exhibit 2 shows the correlation between the key alternative asset classes and traditional public markets.
Since June , quarterly returns. RE — real estate. Global infrastructure infra.
Fidelity Institutional Asset Management
Private Equity Index. Venture Capital Index. Returns are denominated in USD.
- Alternative Assets and Strategic Allocation: Rethinking the Institutional Approach!
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Guide to Alternatives— 2Q The exact weight of the alternative bucket within a diversified portfolio will depend on individual return objectives, investment horizons and liquidity constraints. For investors who do require daily liquidity the range of liquid alternative strategies investing in public markets has also increased in recent years. Institutional investors have for too long stuck with investments that are poorly equipped to deal with volatile markets.
To remain competitive, these investors must look to the too John B. Abbink details innovative ways to measure and analyze alternative assets and walks the reader through the practical application of these techniques. He then reviews some of the latest alternatives rising in popularity, for better or worse, including high-frequency trading, event-driven investment, direct lending, and more.
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Why invest in alternative assets?
JOHN B. John's years of due diligence experience and his fresh and candid writing style make this a valuable body of work whether you are a fund allocator looking for a robust and practical analytical framework or a fund manager who could benefit from the perspective of his target audience. Thus, whether you are exposed to alternative investments or not, you must know why you've chosen where to allocate. Abbink offers ingenious answers and provides endless food for thought, yet delivers the even more valuable service of indicating where answers are unavailable and unlikely to be forthcoming.
follow url Written as a practical rather than a theoretical guide, Alternative Assets and Strategic Allocation includes a clear explanation of how to apply the book's techniques to investment decisions. Abbink outlines a strategic approach for including alternative investments into portfolios and shows die pivotal role diey play in an investment allocation. This reliable resource also offers a wealth of methods on valuation as applied to alternatives.
Using die information found in this book, investors will have a clearer sense of how to approach investment problems when working with alternative assets. The usual approaches to asset allocation no longer suffice. Market turmoil has revealed the need for fresh ideas and innovation.
- Alternative Assets And Strategic Allocation: Rethinking The Institutional Approach (Bloomberg) !
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- What are alternative investments?.
Institutional investors have for too long relied upon strategies that are poorly equipped to deal with the unexpected metrics that volatility creates. To fulfill their fiduciary mandates and remain competitive, investors must look to the tools of the new investment age. In this much-needed resource, alternative and portfolio management expert John Abbink demonstrates new ways of analyzing and deploying alternative assets and explains the practical application of these techniques.
Alternative Assets and Strategic Allocation clearly shows how alternative investments fit into portfolios and the role they play in an investment allocation that includes traditional investments as well. This book also describes innovative methods for valuation as applied to alternatives that previously have been difficult to analyze. Engaging and informative, Alternative Assets and Strategic Allocation contains an analytical toolkit that gives investors new ways to assess any investment product and provides criteria by which commonality or distinctiveness among them can be detected.