ISSUE 5
THE CASE FOR
ALTERNATIVES:
DIVERSIFYING
PORTFOLIO ASSET
ALLOCATION
The Case for Alternatives:
Diversifying Portfolio
Asset Allocation with
Kelly+Partners Alternative
Investments
In the realm of investment, the age-
old adage ‘Don’t put all your eggs in
one basket’ holds true, emphasising
the importance of diversification. While
traditional asset classes like stocks and
bonds have long been the cornerstone
of investment portfolios, the landscape
is evolving, with investors increasingly
turning to alternatives to enhance
diversification and potentially boost
returns. This paradigm shift is evident
not only in the portfolios of institutional
investors but also in the strategies of
individual investors seeking to fortify their
financial future.
In Wealth Management, Alternative
Investments refer to asset classes besides
the traditional equities, fixed income
and cash. These may include real estate,
private credit, private equity, hedge funds,
and other non-traditional assets. The
appeal of alternatives lies in their potential
to generate returns that are less correlated
with traditional markets, thus providing
diversification benefits and potentially
enhancing risk-adjusted returns. Despite
these benefits, it is often the case that most
individual or family groups have an under-
allocation to alternatives compared with
their institutional counterparts.
One notable segment where alternatives
have been extensively utilised with
remarkable success is in the investment
portfolios of large US university
endowments. These institutions, entrusted
with safeguarding substantial assets to
support their educational missions in
perpetuity, have long been at the forefront
of innovative investment strategies.
Their embrace of alternatives reflects a
sophisticated approach to asset allocation
aimed at achieving long-term growth
and stability.
Page 10
AVERAGE ALLOCATION TO ALTERNATIVES
Large gap
for individual
investors
Global Pension Assets, Study
2016, Willis Towers Watson:
National Association of College
and University Business Ofcers
2016 Study (Equal-weighted
Average); Money Management
Institute, ‘Disruption of
Alternative Investments through
Wirehouses,’ 2016.
INSTITUTIONS VS. INDIVIDUALS
Pensions
Endowments
Individual Investors
27%
29%
5%