Why Alternative Investments?

A PRIMER ON ALTERNATIVE INVESTMENT

Today, the challenges facing investors are very different than those experienced over the past quarter century due to what is expected to be difficult securities market conditions coupled with a low interest rate environment. As a result, knowledgeable investors have moved away from industry abstractions and labels developed over the preceding two decades, and more will continue to do so. The distinctions of growth, value, mid-cap, etc. are less important than tolerance for volatility and expectation for return. The key question for investors is how much risk (i.e. the probability of a permanent loss of capital) will be taken and in what manner will returns be sought.

Experience has shown that the majority of traditional, long-only managers have, over time, failed to add value on a risk-adjusted basis over relevant indices. In part, this is because the universe of managers is the market.

Two key factors highlight why alternative investment strategies are an attractive addition to an investment portfolio: the potential for low correlations with traditional asset classes and the flexible investment mandate whereby the goal of the manager is to generate positive returns, rather than compete against a benchmark or peer group.