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What Influences Advisors When Evaluating Alternatives?

Posted on Posted in Alternative Investments

The majority of the marketing of alternative investments is geared towards communication, with heavy emphasis on the products have the ability to generate strong performance and lower volatility for investors – the twin motivators of increasing returns, while contemporaneously reducing risk. Albeit both of these factors are surely main financial goals for investors, survey results indicate that neither are actually majority interests for investment advisers, particularly when presenting the notion of alternative investment strategies; to their clients.

The list below provides some insight into what truly influences financial advisers, when they evaluate any number of alternative investment options for their clients. This list represents the most important priority, to least important priority.

Inside An Advisor’s Mind:
(Source: Ten Charts That Explain What Advisors Think of Hedge Funds, by senior editor Megan Leonhardt, August 7, 2014)

  1. Low correlation with traditional assets.
  2. As an alternative investment component to their portfolio.
  3. Access to strategies generally not available to 40 act mutual funds.
  4. Improved portfolio risk/return.
  5. Potential for above market returns.
  6. Access to fund managers.
  7. Low volatility.
  8. Access to new return streams.

The reality is that alternative investments are quickly finding their way into the mainstream of portfolio construction. Currently, half of investment advisers do not invest in alternatives, but would consider doing so in the near future. This is important to note because it means there is a huge market of advisers who are willing to be persuaded to join the ranks of alternative investors, once they identify a compelling product that can preserve principle and earn great returns.

It would seem that wealth management as a discipline is becoming more like institutional investing, than a financial advisory service. Both money managers and clients believe that portfolio investment management for the high net worth market should incorporate many of the successful alternative investments and investing techniques, that are already considered “mainstream” for institutional investors.