Advisors turn to alternative investments to counter home-country bias

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More advisors are turning to alternative investments to improve clients’ portfolio performance, according to a recent Ortec Finance survey of wealth managers and financial advisors from five European countries and Canada.
Neil Greenbaum, executive vice-president of sales and partnerships, North America, for Ortec Finance, a technology and risk management company based in Rotterdam, the Netherlands, notes that 81 per cent of advisors say their clients have been investing in a wider range of asset classes over the past year. Many traditionally had a home bias and saw alternatives as a way to branch out and add more international exposure.
Globe Advisor spoke recently with Mr. Greenbaum about the alternative landscape.
Alts have been around for some time. What’s different today?
At first, advisors were searching for more yield in a tough, lower interest rate environment. Within a diversified portfolio, you traditionally saw asset allocation based on market caps and investment style, or value versus growth. But now they’re looking to add another dimension to portfolios. They’re trying to expand the meaning of what it means to diversify. As alts perform independently to the equity markets, they can be a natural way to diversify in a portfolio.
The other big factor is that the industry itself has made it much easier to get into the alternative asset space. There’s a proliferation of products available. These investments used to be reserved for high-net-worth investors. Now, everyone can participate in some way, shape or form.
What do some advisors and clients struggle to understand about alts?
They need to think about balancing liquidity. Our survey found that more advisors plan to increase their private equity (83 per cent) and private debt (85 per cent) allocations in portfolios in the next two years. These are the two most popular alternative investments right now. But while they may have attractive returns and yields, you can’t cash out of those investments right away like a stock. Sometimes, they have hold periods, lock-ins and other things. Advisors and clients need to look at the fine details.
Where do alts go from here?
Although it wasn’t part of our research, I think there are going to be alternatives that will focus on the artificial intelligence (AI) space. There’s been a whole wave of AI machine learning and we’ve seen certain individual stocks take off, and I think that is going to morph into alternatives finding a way to participate.
– Deanne Gage, Globe Advisor reporter
This interview has been edited and condensed.
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– Globe Advisor Staff