"Navigating The Shifts In The Financial Industry With Alternatives"

In recent years, the traditional asset allocation model of a diversified portfolio of public equities and bonds has been challenged by a massive outflow of capital moving from public to private markets. This shift is largely due to a number of secular changes taking place in the financial industry, including the end of the US monetary printing press that began in 2008.

A declining number of publicly traded companies, increased concentration of risk, rising correlations, stiff competition, and scarcity of opportunities for excess returns have all contributed to a decrease in the opportunity set for investors in public markets. As a result, many investors are turning to alternatives as a way to curb volatility and enhance potential risk-adjusted returns.

Alternatives are defined as an alternative to publicly traded stocks and bonds that seek excess returns per unit of risk at every point along the risk-reward spectrum. This allows investors to explore the risk spectrum in private markets in a similar way to public markets, with the key difference being liquidity. Investors who are willing to forego some level of liquidity may stand to benefit from the opportunity in alternatives.

Overall, the shift towards alternatives is helping to mitigate risks in traditional portfolios and providing investors with new opportunities to enhance their returns. While the traditional asset allocation model may no longer be as effective as it once was, the use of alternatives can help investors navigate the changing landscape of the financial industry.

As the financial industry continues to evolve and shift towards alternatives, the Life Equity group has been able to position itself in a growing niche that can help financial professionals understand the value of incorporating alternatives into their asset allocation frameworks. By doing so, investors can build truly diversified portfolios with mitigated risk.