Alternative Manager Portfolio
Alternatives are investments outside of those normally used by the mainstream sector funds. A portfolio of alternatives typically has a low correlation to bond and equity markets and offer valuable diversification benefits. For IOOF the primary motivation of investing in alternatives is to enhance your returns.
Alternatives – Growth are alternatives to equities and property. Assets of this type often have the expectation of higher return over the long term. Growth strategies include:
- Private Equity
- Timber and Agriculture
- Special Situations
- Long Bias Hedge Funds
- Venture Capital
- Distressed Debt
Each target investment will be considered on both a case by case basis and a holistic portfolio basis, and there must be a strong imperative for investing. The attraction of Alternative Growth investments is assessed against the medium to long-term outlook for equities.
For example in the early stages of a bull market for listed equities, it is likely that assets such as Private Equity will underperform over the medium term. As the market cycle progresses, a prolonged bull market can provide an excellent exit environment for Private Equity. In a bear market, entry multiples for Private Equity investments tend to be favourable.
Each of the underlying strategies listed above have their own characteristics, including responsiveness to market fluctuations. Our investment team have extensive insight and experience investing in Alternatives and we build portfolios to best capture market opportunity, take risk in a balanced manner and give clients a meaningful but cost-effective outcome.
Alternatives – Defensive are an alternative to fixed interest and can be used to capture opportunities in the market during the bond and credit cycle. Defensive strategies include:
- Infrastructure (core strategies)
- Insurance Linked Bonds
- Inflation Linked Bonds
- Mezzanine/Subordinated Debt
- Distressed Debt (conservative sub-class of the categories)
- Emerging Market Debt
- Non-Directional Hedge Funds
Again, the return and diversification benefits are important.
For example, in a potential rising rate environment, a long government bond position is likely to generate a low or negative return. Infrastructure and Inflation Linked Bonds are likely target investments. Conversely, in a potential falling rate environment, it is likely that economic conditions are deteriorating and there is a higher probability that credit spreads will widen. Inflation Linked Bonds, Non-Directional Hedge Funds and Insurance Linked Bonds are likely target investments.