For a long time, holding 60 per cent of a portfolio in stocks and 40 per cent in bonds meant people had high growth potential from riskier stocks and protection from the more conservative bonds.
But the benefits of this have diminished due to inflation and falling markets. There are no longer the same protections as there were in the past. To build a robust portfolio today, alternatives to provide investors with risk-adjusted total returns need to be added to the mix.
According to Blackrock head of alternative investment specialists Jason Horn, alternatives have always been a part of investing from a superannuation or pension fund.
“The access has improved over the last five to ten years,” he said, adding that it is continuing to improve.
He explained that alternatives and liquidity only sometimes go together.
“For example, it’s tough to set up an evergreen infrastructure program that doesn’t have some sort of lock-up at the beginning so you can actually invest into those assets,” Horn said.
“But on the hedge fund side and more into the credit side, there are ways and means that you can add a portfolio that can give some liquidity when needed.”
Horn said Blackrock has a large alternatives business.
“We run around about $330 billion globally, but we try to be specialised in the segments that we that we target,” he said, adding that Blackrock has been local in Australia across several different asset classes.
“We focus primarily on the hedge fund space, private equity, credit, and more recently, the renewable side of infrastructure.”
LGT Crestone chief investment officer Scott Haslem said clients, advisers, and firms have experienced challenges. He now thinks “we’re moving towards more technology solutions, where everything can all be automated.”
‘Exposure should and will be creative’
MLC Asset Management portfolio manager Laura Hotaling spoke about the 60/40 equities and bonds mix, private equities, and implementation during the panel discussion.
“If implemented correctly, exposure should and will be creative,” she said.
“With that in mind, however, there’s a large standard deviation or a large fan of outcomes. So, success requires experience and access to the top performing managers.”
She added that experience is ‘key’ and selection ‘really matters’.
“With every investment you make, there’s an opportunity cost, and it takes time to learn the landscape because there are literally thousands of fund managers and opportunities out there,” Hotaling said..
“While it may look easy, you may miss out on other opportunities that provide better relative returns for your portfolio.”
