A long-held mantra—that a diversified portfolio of public equities and bonds is the key to a successful retirement plan—is now being challenged by secular shifts taking place in financial markets today, including the end of the monetary printing press that started in 2008. What’s an investor to do? Lead Portfolio Manager Matt O’Mara tackles this question in our latest white paper.
Key Takeaways
- The end of a 14-year-long period of monetary expansion, a declining number of publicly traded companies, increased concentration of risk, rising correlations, stiff competition, and scarcity of opportunities for excess returns have all coalesced to diminish the opportunity set for investors in public markets.
- How can investors address this challenge? As private markets continue to grow, we believe that investors should rethink their strategic asset allocation frameworks to add or increase the use of alternatives in their portfolios to curb volatility and seek to enhance potential risk-adjusted returns.
- We define “alternatives” as simply an alternative to publicly traded stocks and bonds that seeks excess returns per unit of risk at every point along the risk-reward spectrum, from investment-grade credit to equity.
- Seen through that prism, we believe that it becomes clear that investors can explore the risk spectrum in private markets similarly to public markets. A key differentiating element is liquidity. We believe that investors who can forgo some level of liquidity stand to benefit from the opportunity in alternatives.