Our Philosophy on Alternative Investments


Our Alternative Investment Strategies Philosophy

Diversification is the “Holy Grail”

There are many players in the financial services marketplace. Some offer a “better mousetrap.” Others offer the latest “inside scoop.” Still others sell fear. Talk is cheap in today’s post-2009 world. Delivery and performance is critical. Old philosophies no longer seem to fit the dynamic realities of today’s markets. Buy and hold, even for a single quarter, may not produce the optimum results clients seek. Flexibility is key. Investment allocation models must be constantly reviewed, revised and honed to obtain true tactical advantage without sacrificing strategic considerations. Frequently, especially with increased market volatility, the problem for investors is not only finding the optimal portfolio allocation, it is also tactically managing that best suited portfolio to avoid losses where they can be avoided. Moreover, a portfolio allocation model shouldn’t be a one-directional configuration. Ideally, a client’s portfolio should be balanced by a model suitable for the client’s strategic goals without sacrificing short-term flexibility. Diversification is the “Holy Grail.” Alternative Investments Strategies (“AIS”) move beyond traditional long-only investing. AIS are the latest, and possibly last, frontier in the ongoing search for diversification.

Alternative Investments

Alternative Investments can be broadly defined as any asset or strategy not traditionally considered core public fixed income or equity. At the 30,000 feet level, alternative investments may be delineated between two distinct segments – alternative assets and alternative investment strategies.

Alternative Assets

Alternative assets, generally termed as “satellite” or niche assets, include direct or indirect investments in non-traditional assets on a long-only basis. A well-known example is Income producing real estate. Investors conventionally have gained liquid exposure to this market by investing in Real Estate Investment Trusts (REITs). Commodities, private equity and emerging market debt (e.g., Brazil, India, China) are other common examples of alternative assets. Alternative asset class managers’ perfomances are ranked by comparing their relative returns against a representative passive market benchmark index (yes, they too are seeking alpha!), although obviously liquidity profiles probably vary from case to case.

Alternative Investment Strategies (“AIS”)

Alternative investment strategies (AIS) differ from alternative assets, as here the managers seek a return independent of market direction. Thus, these strategies call for flexibility and utilizing both long and short investments. The academic technical term for this investment style is “absolute return.” Most investors would recognize AIS in this sense as being used in hedge funds. However, AIS is not exclusive to any fund structure. A manager may employ a wide variety of “nontraditional” investment techniques, including shorting of securities, using derivatives such as options or leverage to control portfolio risk factors, and thereby exploit certain opportunities in the markets to generate return. For example, a manager being long in some equities expected to outperform and short in others not expected to perform to par, seizes tactical opportunities to enhance overall risk-return performance and thereby gain optimal results. So, while active alternative asset investing is a long-only strategy, driven primarily by market beta, AIS total returns are primarily driven by manager skill (alpha) or a nontraditional risk premia. Towards those ends, our back-office support staff and third party managers are always in pursuit of alpha!

Towards that pursuit, our group of independent money managers, insurance groups offering AIS sleeves in their sub-account offerings, and specialists in the AIS venue, may bring to the individual investor client what was previously the sole province of institutional and ultra-high-net-worth investors: AIS! In today’s post-2009 global financial crisis, investors want their portfolios to survive equity market volatility moves coupled with today’s historically low interest rates. Accordingly, we attempt to satisfy this search with AIS product offerings in the open-end mutual fund universe, or what some have called “the mainstreaming of alternatives.” The goal here is to find carefully selected alternative investment strategies in hopes of increasing the probability to improve portfolio returns. But, historical data (and probably your experience) show that the conventional core-satellite balanced portfolio models have produced appropriate or perhaps “expected” correlation properties long-term, but demonstrate unreliability or vacillation in the short-term.


NOTE: Diversification and asset allocation do not assure a profit or protect against loss. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance.Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results. Therefore, no current or prospective client should assume that future performance or any specific investment, investment strategy or product will be profitable. In many cases, liquidity or diversification constraints are imposed in terms of total dollar caps or allocation percentages of total portfolio allocation allowed to be made in certain AIS investment offerings.

Alternative investments include direct participation program securities (partnerships, liability companies, and real estate investment trusts which are not listed on any exchange), commodity pools, private equity, private debt and hedge funds.These programs may offer high net worth, accredited investments are illiquid investments and their current values may fluctuate from the purchase price. Statements for such investments represent their estimate of the value of the investor’s participation in the program. The estimated values may not necessarily reflect actual market values or be realized upon liquidation.