Ask the Expert with Invesco: Why Should Investors Invest in Alternatives?

Neil Blundell is Global Head of Client Solutions and Alternative Solutions for the Invesco Investment Solutions team, which develops and manages customised multi-asset investment strategies. In this role, he leads the client advisory effort to formulate outcomeoriented investment solutions.

Sebastian Culpan-Scott: What are alternative assets?

Neil Blundell: Broadly defined, alternative assets include a wide range of investments beyond traditional fixed income and equities. These include investments across the liquidity spectrum, from REITs, commodities, broadly syndicated loans, to hedge funds, private credit, direct infrastructure, direct real estate, and private equity.

Sebastian: Why should investors include alternatives within their portfolios?

Neil: In addition to providing diversification within their portfolios thanks to low overall correlations to traditional equities and bonds, alternatives are useful tools to help advance specific outcomes or objectives. Some of the outcomes we often discuss with investors include income generation, high growth and capital appreciation, real return, or custom combinations of these goals.

Sebastian: What are the benefits of holding alternative investments?

Neil: There are a myriad of benefits to holding alternative investments, with diversification and low correlation to traditional assets as a common theme across the broad alternatives landscape. On the private markets side of alternatives, mitigating mark-to-market volatility can be a benefit for many investors. The breadth of the opportunity set opens up many potential benefits, from enhancing income to complementing traditional corporate credit with private credit, to obtaining targeted, high-growth exposures through private equity strategies, or perhaps seeking inflation protection through infrastructure and real assets.

"There is a fair amount of complexity to consider when investing in alternatives, and it can be a highly resource- and capital-intensive process from start to finish."

Sebastian: What are the risks and drawbacks of investing in alternatives?

Neil: There is a fair amount of complexity to consider when investing in alternatives, and it can be a highly resource- and capital-intensive process from start to finish. Being able to source compelling opportunities, model their risk and return profiles and their role within a broader asset mix, complete investment and operational due diligence, and navigate the nuances of execution and implementation are all potential challenges. It’s also important to clearly understand the investment opportunity and its alignment with the risk tolerance, liquidity needs, and objectives of the portfolio, particularly in the case of very long term investments.

"There are compelling pockets of opportunity across the spectrum of alternative assets, and each asset class can play slightly nuanced roles within a diversified portfolio"

Sebastian: How much should investors allocate to alternatives as part of their portfolios?

The article continues on page 10 of the special report: Alternative Assets: Diversified returns in a volatile world