In recent years, investors and advisors have started to rethink portfolio construction. This has been driven by an era of low interest rates, dissatisfaction with the diversification of publicly traded portfolios, and the substantial growth of alternative investments, including private equity, private credit, hedge funds and real assets. Investors who remain exclusively invested in public equity and fixed income securities are vulnerable to various risks, some of which can be mitigated by diversifying into alternative investments.
Key Takeaways
- Alternative investments are becoming mainstream, with 92% of surveyed advisors holding allocations in client portfolios. Typical allocations range between 6% and 25%.
- Alternative investments can overcome the shortcomings of the 60/40 portfolio, increasing income, reducing downside risk, enhancing diversification and hedging against inflation.
- While each investor has unique circumstances, most investors don’t require liquidity in 100% of their portfolio. Evergreen funds, including tender offer funds, provide access to alternative investments with potentially greater liquidity than drawdown funds. Evergreen funds allow for the democratization of alternatives, as they are available to a wider audience than drawdown funds.