Why alternative investments should be part of the investment strategy
Long the preserve of institutional investors, private investors are also increasingly utilising the advantages of alternative investments. Colin&Cie has been offering private clients the opportunity to invest in this asset class via its portfolio management mandates since 2016. What conclusions can Colin&Cie draw eight years after including alternative investments in its long-term investment strategy for the first time?
Traditional investments in retrospect
The era of low interest rates that has lasted for more than ten years, a subsequent turnaround in interest rates at historic speed resulting in high price markdowns for bonds and poor years for equities (2018, 2022) with losses in the double-digit percentage range have demonstrated this: Traditional investment products such as bonds and equities are only partially sufficient for the sustainable development of returns and stabilisation of a portfolio. The search for investments that differ from traditional financial investments in terms of their return and risk profile has led to the market for alternative investments becoming increasingly important in recent years.
The advantage of alternative investments
Private clients have long been turning to alternative forms of investment such as property, gold or art when allocating their assets. However, the investments that are currently understood as "alternative investments" also include private equity, corporate financing (private debt), investments in infrastructure projects (renewable energies, traffic, transport), the financing of legal costs or the assumption of insurance commitments.
While traditional financial investments tend to be exposed to systematic risk factors (development of the economic environment, interest rate trends, market psychology), alternative investments are subject to specific risks that are often directly related to the financing purpose. With this difference, the use of alternative investments in a portfolio can broaden risk diversification, reduce fluctuations, and increase target achievement in the long term. At the same time, the investor does not have to sacrifice returns.
Analysis of the period 2016-2023
The positive effect of improved risk diversification through the addition of alternative investments to bonds and equities is confirmed by the analysis of the Colin&Cie mandates over the last eight years. In the period from 2016 to 2023, a portfolio with alternative investments generated a better return in every year (except 2019) compared to a portfolio without alternative investments. The reason for this is that when looking at the individual asset classes in isolation, alternative investments never had the worst return contribution, apart from 2019.
Disadvantages of alternative investments
The disadvantages of alternative investments generally include a lack of transparency and illiquidity. Bonds and shares can be traded daily on the stock exchange and can therefore be sold at very short notice. In the case of alternative investments, not only a longer investment horizon but also a longer holding period - like a property investment - should be considered due to the commitment entered in the underlying transaction.
Alternative investments at Colin&Cie
Eight years after the introduction of alternative investments, Colin&Cie draws a positive conclusion. As an independent asset manager, we have made this asset class, which is usually reserved for institutional investors such as insurance companies and pension schemes, accessible to our private clients throughout Europe. To achieve the necessary diversification and transparency, we invest in a broadly diversified portfolio with investments from selected managers who have a particularly high level of expertise and many years of experience as well as independence from traditional investments and financial markets. We pay particular attention to transparency, as we only invest in assets that we can scrutinise in detail. We have also found a solution in terms of realisability: In future, the liquidity surpluses arising during the investment process will be used to fulfil our customers' redemption requests to a certain extent.
We always analyse whether this asset class suits an investor in an individual discussion. Please feel free to contact us.
Disclaimer - legal notice
This publication was produced by the Investment Office of the Colin&Cie Group. The information and opinions contained in this document are based on sources we believe to be reliable. However, we cannot guarantee the reliability, completeness or correctness of these sources. All information and quoted rates are only up-to-date at the time of this publication and are subject to change at any time without notice. The content is based on numerous assumptions made by the Colin & Cie Group. It should be noted that different assumptions can lead to materially different results. The forecasts and assessments are only current at the time this publication is prepared and can change at any time without prior notice. Past performance of an investment is not a guarantee of future results. Certain investments can experience sudden and substantial losses in value. This information and views do not constitute a solicitation, offer or recommendation to buy or sell investment instruments or to carry out any other transactions. We recommend interested investors to consult their personal advisor before making decisions on the basis of this document so that personal investment goals, financial situation, individual needs and risk profile as well as further information can be duly taken into account as part of a comprehensive consultation. The information contained in this publication is marketing material that is distributed for advertising purposes only.
