Alternative investments – absolute return (hedge funds), real estate and private equity - enable the creation of portfolios with higher returns with a given risk, or lower risk with a given return
Absolute return portfolios and real estate show significantly different performance profiles in comparison with the other asset classes and therefore contribute substantially to diversification
Private equity on the other hand helps less with portfolio diversification but has got the potential of essential contribution to portfolio returns
Well chosen leveraged buyout and venture capital investments can achieve high returns in comparison with alternatives in the equity markets and improve the performance of the whole portfolio considerably
As there are no passive investment opportunities in venture capital and leveraged buyout, it is absolutely key to have access to the proven private equity firms if one wants to perform better than the surprisingly low average
We do not just have access to many high calibre managers but are also in a position to let our clients partake in investment opportunities with otherwise prohibitively high minimum subscription amounts
Absolute return portfolios, usually within hedge funds, consist of traditional securities and financial instruments with which the managers attempt to exploit market inefficiencies using financial leverage. In theory, these portfolios should have little or no correlation with conventional equity or bond markets. The performance of the hedge fund universe since 2007 has shown a different outcome. The prevailing fee structure makes it even less attractive for investors to allocate assets to hedge funds
The investment universe reflects the base value of real assets such as shares, agricultural products, industrial metal, energy, precious metal, real estate, foreign currency and bonds. A team of managers with different investment styles can result in a clear reduction of the overall volatility and therefore risk
Real estate gives protection against unexpected rises in inflation. The price of high quality, fully let properties in good locations reacts directly to inflation as building costs also rise with increasing prices
This advantage comes at a price however, as long term performance expectations tend to be lower as compared with traditional securities. Market inefficiencies and real estate require active management. Through the use of first class managers, investors can raise their returns considerably
