A QUARTER of high net worth (HNW) investors are now allocating at least one fifth of their wealth into alternative assets such as peer-to-peer lending, according to new research.
Alternative assets help HNW investors broaden diversification the in their portfolios in order to enhance returns and increase resilience, said specialist investment firm Connection Capital, which commissioned the survey.
Furthermore, the appetite for alternative assets is set to grow, as private investors attempt to emulate the portfolios of more sophisticated investors and institutions over time.
“Alternative assets are no longer a sideshow,” said Claire Madden, managing partner at Connection Capital.
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“Given the current challenging investment environment for traditional asset classes, a move towards higher allocations to alternatives is understandable for sophisticated private investors with the right risk profile.”
“20 per cent in alternatives might sound like quite a chunk, but there is the possibility for tremendous diversification within the spectrum of alternatives.
“Alternatives is a broad category containing many different sub-sets of assets and investment strategies.
“Investors will therefore want to branch out into several types of alternatives where possible, so they can create a variety of returns streams while avoiding excessive concentrations of risk building up in any one area.”
The survey of 120 of Connection Capital’s private investor clients found that 25 per cent have a fifth or more of their portfolio allocated to alternative assets, including private equity, commercial property and hedge funds.
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It found that investors are seeking access to a range of sophisticated alternative strategies to reduce correlation within portfolios and improve overall risk-adjusted returns.
Although such strategies are often less liquid, taking a long-term approach can enable investors to hedge against more volatile shorter-term investments such as quoted equities.
“Incorporating assets with different time frames is one way to achieve greater diversification, such as including private equity or property which tend to have a longer-term investment horizon alongside more liquid, but also more volatile, quoted equities,” said Madden.
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