High-net-worth investors “remain absolutely convinced” by alternative investments, including venture capital, cryptocurrencies, structured products, and hedge funds – despite a wider slowdown of inflows into the sector.
The assessment from Nigel Green, the chief executive and founder of deVere Group, comes as media reports cite research that suggests that inflows have dropped by hundreds of billions of dollars over the last year as institutional investors reassessed their exposure to ‘alts’.
He says: “While institutional investor inflows into alternative investments might have slowed, our experience worldwide shows that the opposite is true with individual investors.
“Interest from our high-net-worth individuals around the world is growing in ‘alts’; they remain absolutely convinced that less familiar, return-enhancing asset classes, which include venture capital, structured products, high dividend stocks, crypto, hedge funds and managed futures, and real estate, should be a part of their investment mix.”
Alternative investments are distinct from traditional asset classes like stocks, bonds, and cash, encompassing a diverse array of investment options that offer unique risk and return profiles.
While they require careful due diligence, their inclusion in a well-structured portfolio can offer opportunities for enhanced returns and exposure to non-traditional investment strategies.
Alts are characterised by their potential to deliver higher yields and increased capital appreciation, though they can also come with greater complexity and illiquidity.
“Savvy investors will be considering this temporary period of falling inflows or lower popularity as a buying opportunity. They will be seeing the bigger picture,” affirms Green.
“These investors understand that alternative investments tend to have low correlations with traditional asset classes like stocks and bonds, meaning that their performance may not be closely tied to the movements of traditional markets. Diversification can help reduce overall portfolio volatility and mitigate the impact of market downturns. This can improve the overall risk-adjusted returns of a portfolio.”
He continues: “While alternative investments come with higher risks, they also offer the potential for higher returns compared to traditional investments, especially in periods of economic growth or when specific strategies are successful.
“They also provide flexibility in terms of investment strategies. Hedge funds, for instance, can employ a range of strategies to potentially profit from market inefficiencies.
Potential for alpha
“Some alternative strategies aim to generate alpha, which is the excess return earned above the market’s benchmark. Skilled managers in areas like hedge funds or private equity may be able to capitalise on their expertise to outperform the broader market.”
For these important, strategic reasons, the deVere CEO predicts that “institutional investors will be back into alts in the near future”, adding, “the current slowdown of inflows by institutions is a blip”.
Investors considering alternative investments should conduct thorough due diligence, assess their risk tolerance, and consult with a financial advisor who understands the opportunities as well as complexities of these investments.
“Remaining steadfast in their strategy for wealth building success, ‘diversify and thrive’ would be high-net-worth individuals’ attitude towards alternative investments,” Green concludes.
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of offices across the world, over 80,000 clients and $12 billion under advisement.