As the investment landscape continues to evolve, alternative investments are playing a larger role in portfolio construction. In this episode, host John Bryson talks with Pattie about the factors driving increased interest in this segment.
Pattie shares insight into the development of new product structures, advances in technology, and the expanding access to private markets. She also addresses how the industry is responding to investor demand through innovation.
1 What are alternative investments?
Pattie: Alternative investments are nontraditional assets outside of stocks and bonds, such as private equity, private credit, hedge funds, and real assets. They’re typically less liquid, more complex and are structured to enhance risk/return profiles. They generally provide diversification and increased income. These differ from liquid alternatives, such as long/short equity, market neutral, managed futures, and more derivative-related strategies.
2 What investor needs do alternative investments address?
Pattie: Alternative investments are designed to meet investor needs and market gaps that traditional stocks and bonds may not. They provide diversification, which helps reduce portfolio concentration risk, as well as inflation protection. They also offer higher return potential through access to unique private market opportunities. Lastly, the illiquidity premium is a key feature, which is the price paid for additional returns in exchange for locking up capital for longer.
3 What’s the future of alternative investment product development?
Pattie: In one word: democratization. We’ll see increased retail access to private markets, technology-driven distribution, tokenization, blockchain for settlement and customization. We’ll also see the emergence of alternative model portfolios that blend private and public assets. The industry is also focusing on innovations in liquidity and evolving fee structures.
