Alternative Investment Strategies for Wealth Managers

TL;DR

Wealth managers discuss the importance of alternative investments in portfolio construction to diversify and generate income in a low-yield environment.

Transcript

why don't we start with you Shannon and we can just go down the line everybody can introduce themselves and give us a little bit about your background sure Shannon sukoshi I'm the chief investment officer at Boston private we're a financial services company providing wealth management solutions along with banking solutions for primarily high net wo... Read More

Key Insights

• ⌛ Volatility in markets creates opportunities for alternative managers to showcase skill and alpha generation during challenging times.
• 🥹 Wealth managers must educate clients on the benefits of alternatives and the underlying risks, especially with illiquid investments that require longer holding periods.
• 👻 There is a growing trend of democratization in the alternative investment space, allowing individual investors to access strategies historically limited to institutional investors.
• 🧑‍🏭 Due diligence is crucial in selecting and monitoring alternative managers, focusing on factors like philosophy, track records, correlations within portfolios, and exposure to different market risks.
• 💨 Alternative investments provide a way to achieve diversification, generate income, and capture market inefficiencies, especially in a low-yield market environment.
• 🧑‍🏭 Real estate can be a valuable addition to portfolios, but careful consideration of location, risk factors, and alignment with overall investment objectives is essential.

Questions & Answers

Q: How do wealth managers address clients' concerns about finding differentiated sources of return in a low-yield environment?

Wealth managers aim to diversify clients' portfolios through non-correlated assets and non-traditional strategies like equity hedge and special situations. They seek a combination of income and non-correlated strategies to generate differentiated sources of return.

Q: What are some key considerations in selecting alternative managers for portfolios?

Wealth managers emphasize the importance of due diligence, building personal relationships with managers, assessing track records, evaluating manager philosophy, and understanding the underlying risk of the investments. Third-party resources, like Mercer, are utilized to enhance the due diligence process.

Q: How do wealth managers approach portfolio construction and balancing risk and return?

Wealth managers incorporate alternative investments based on their non-correlation to traditional stock and bond markets. They also focus on income generation through public markets, market-neutral funds, and real estate investments. The goal is to balance risk and return while considering clients' cash flow needs and liquidity requirements.

Q: How do wealth managers navigate the risks associated with alternative investments, such as style drift and concentration?

Wealth managers prioritize transparency and communication with managers to identify any style drift or concentration risks. Close relationships with portfolio management teams help monitor and understand investment decisions. Third-party resources, such as Mercer, provide additional due diligence support in evaluating alternative managers.

Summary & Key Takeaways

• As the bull market cycle nears its end, wealth managers are seeking differentiated sources of return and non-correlated assets to balance clients' needs for yield.

• Non-traditional strategies, such as equity hedge, equity long-short, and special situations, are seen as potential opportunities in late-stage markets.

• Alternative investments, comprising about 20-30% of a portfolio, contribute to durability and sustainability, with a focus on finding unique and well-managed opportunities.