Alexander McNab of SMSF Adviser writes about the investment opportunities in alternative asset classes for Self-manages super funds (SMSF):
“…Most self-managed super funds have historically had almost no allocation to alternative asset classes, largely because of a lack of knowledge, understanding and access. Alternative asset classes include private equity and venture capital, hedge funds, private real estate and ‘real assets’ like infrastructure, timberland or farmland. The common thread among these asset classes is a risk, return, liquidity and correlation profile different from the traditional asset classes of equities and fixed income.
Institutional investors overseas have long recognised the benefit of substantial allocations to alternative asset classes. According to Russell Investments, international institutional investors allocate 22.4 per cent of their portfolios to alternative asset classes and some very successful investors, like the Harvard Endowment Fund, allocate 60 per cent or more of their portfolios to alternatives. The Future Fund, an early leader in the Australian market, allocates 36 per cent of its portfolio to alternatives.
These investors allocate so meaningfully to alternatives for a number of reasons. Alternatives are typically uncorrelated with equity markets, providing genuine diversification benefits. Alternative asset managers often invest in relatively illiquid markets where assets are more frequently mispriced, creating the potential for strong managers to generate sustained outperformance. Finally, alternative asset managers have a much more strongly aligned fee structure, concentrated on performance fees that reward absolute performance, not performance relative to a benchmark…”
If you are an SMSF owner – what alternative asset classes have you invested in and considered? My wife and I are invested in a private magazine publisher and are learning about alternative investments, not with an eye for diversification only, but for alternative opportunity with a manageable risk and good potential return.
What is YOUR story? Share some here in the comments.
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