With leading commentators remaking on low levels of volatility across both asset classes, it’s clearly time to start thinking about alternatives. But what exactly do we mean by ‘alternatives’ today, and is it an outmoded team?
Alternatives certainly cover a much wider variety of asset classes from a few years back, when the options were somewhat limited.
“10 years ago it was predominantly property and fund of hedge funds – we didn’t have NURS [Non-UCITS Retail Schemes], for example, so it was hard to invest in alternatives,” says Richard Philbin, CIO at Harwood Multi-Manager.
“As a multi-manager it was literally property, equity, fixed income, cash and funds of investment trusts. In the past 10 years we’ve seen UCIS [Unregulated Collective Investment Scheme], and the development of the property space and PAIFs [Property Authorised Investment Fund].”
Once out of reach
The UCITS absolute return space also accounts for a large proportion of alternative investments today, with strategies such as long/short equity, market neutral, merger arbitrage and global macro previously out of reach for retail investors.
For John Husselbee, head of multi-asset at Liontrust, the careers path for managers has “flipped 180 degrees”.
“Post 2008, we’ve seen retail alternative strategies come to market that are regulated, transparent, and have better liquidity around them with daily dealing rather than monthly liquidity,” he says.
“10 years ago, retail fund managers wanted to run hedge funds, but now hedge fund managers all want to run UCITS, onshore-regulated funds. That’s where the client demand is – they want transparency, liquidity and lower charges.”
Whereas previously alternatives were, say, a 5-10% investment in non-traditional assets for the sake of diversification, today investors are much more demanding in seeking both growth and yield outside of equities and bonds.
Esoteric vehicles investing in the likes of loans, solar power, private equity, commodities, catastrophe bonds and reinsurance all have their devotees. However, it is interesting to note that the majority of these, and indeed property portfolios, are predominantly lunched in the closed-ended sphere.
With liquidity seemingly the number one concern for investors in alternatives today, it makes sense for the closed-ended structure to gain traction, though for optimal value they have to contend with the supply/demand issue.
Choice at a premium
Much of the property, infrastructure and private equity investment trusts available today are trading at a premium, but choosing the right entry point is where wealth managers really earn their keep. After all, clients have plenty of ‘alternative’ fund pickers to choose from!
An in-depth study into modern alternatives, and their role within client portfolios, features in the forthcoming September edition of Portfolio Adviser, out soon.