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Key to Future Returns Alternative Investments

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December 29th, 2020




Andreas Bezner

How Investors Can Benefit from Alternatives Alternative investments are booming, and while economies around the world look to rebuild after the COVID-19 crisis, alternative investments will play a key role. As we explained in our last blog post, alternatives are evolving from an optional to an essential portfolio component. Both institutional and individual investors currently face ever-fewer opportunities whether in search of alpha, income or diversification within traditional assets. Lower interest rates over the past decade led to income-hungry investors. Alternative strategies in the real assets and alternative credit segments are valid options for creating stable income sources. A key benefit of alternative investments can be avoiding the daily stock market volatility. The ability of bonds to provide portfolio protection in a potential market downturn has decreased significantly within the last years. Long-term advantages of alternatives outweigh the risks Contrary to shares and bonds, alternatives tend to be less affected by external factors. “Alternative assets have delivered a good relative performance in both bull and bear markets. Investors are recognizing this and are continuing to put their faith in alternative assets”, Mark O’Hare, founder and CEO of the financial data provider Preqin, states. Investment objectives and experience with alternatives vary not only across but also within investor segments. Therefore, the characteristics of alternatives, such as higher illiquidity, which translates into sometimes unpredictable returns, limited transparency, skewed risk, and complex fee structures, present greater challenges for some investor types than others. Market observers at JP Morgan predict that the flow of capital into alternatives will likely shape alternative investments’ risks and rewards over time. The alternatives experts also write that “investors appear to have concluded that the long-term benefits of these non-traditional assets are likely to outweigh the challenges”. In this blog post, we are analyzing the benefits and risks of alternative investments. Private equity and VC investing generate high returns and increase portfolio diversification The alternative investments market tends to be less transparent than traditional stocks and bonds. Valuable information is not always available to all market participants. Especially in Venture Capital (VC) and private equity, private investors, financial intermediaries, and wealth managers cannot always see enough investment opportunities and do a due dililigence that is deep enough to make informed decisions. A fragmented market, gatekeepers, high minimum investments, and limited availability of relevant data or information further aggravate the issue. Stableton’s new Pre-IPO and Late-Stage portfolio strategy allows investing in late-stage and pre-IPO companies with a clear exit plan and foreseeable timeframe. By following a portfolio approach within this investment stage, holding periods will be decreasing significantly. In other words, this means having the advantage of private equity and venture capital investing in terms of generating higher returns while having a shorter time horizon and achieving portfolio diversification. A new multi-manager strategy enables investors to profit from swift market moves With the new Crisis Alpha Strategy, Stableton enables financial intermediaries to enter alternative investments and invest in liquid instruments such as global futures across volatility, equity, commodity, currency, stock index, bond index futures, and crypto asset classes. All managed by top-tier hedge funds and best in class partners. The Crisis Alpha Strategy’s underlying strategies can immediately react to changing market regimes and profit from swift market moves. Protected by disciplined risk management, our Crisis Alpha Strategy is an opportunity to earn positive, uncorrelated returns in a wide range of markets over the long-term. Furthermore, we are now offering a liquidity desk, which enables our investor community to liquidate its alternative investments effortlessly. Working with an experienced alternatives partner helps investors detect lucrative opportunities According to the Preqin Global Alternatives Report from 2020, more hedge fund managers deploy artificial intelligence and machine learning technologies to stay ahead of the competition. In hedge funds, fat tails are not uncommon. The concept of tail risk suggests that the distribution of returns is skewed and has fatter tails. This indicates that the probability of an investment moving beyond three standard deviations exists. Tail events that negatively impact portfolios are rare, but they may have substantial impacts. Therefore, it is vital to hedge against these eventualities by diversifying their portfolios. Banks, wealth managers, and investment advisors catering to private investors need access to multiple investment options across more than one alternative investment vertical. Financial intermediaries must gain exposure to an actively managed portfolio consisting of alternative investment strategies. By collaborating with an alternatives partner offering low investment minimums, the diversification essential for alternative investments is much easier to accomplish. Furthermore, increased flows lessen investment hurdles. We empower financial intermediaries to exploit the potential of alternatives Stableton aims to break down entry barriers to private markets and provides access to alternative investments such as exclusive late-stage ventures and pre-IPO companies. The Stableton Marketplace allows financial intermediaries to discover opportunities faster and execute transactions more efficiently. No structuring. No paperwork. Even for seasoned investors, navigating the alternatives universe can be challenging. Alternative investments tend to have high minimum investments and complex fee structures. Investment researchers predict that the gap between passive index-tracking or systematic strategies and more active, top-performing, alpha-seeking managers will widen further. This means that fees will become even more differentiated and less transparent. Private markets are also becoming more complex, larger, and more profound. Identifying the best investment opportunities for each investment segment requires working with an experienced alternatives partner that sources and identifies lucrative investment options. Innovative solutions such as the Stableton Marketplace – the leading one-stop-shop for alternative investments – have been developed for banks, wealth managers, investment advisors, and qualified investors to exploit the benefits of alternatives. At Stableton, we offer industry-leading expertise and bankable solutions to source and identify alternative investment opportunities directly and across an ever-increasing network of deal-sourcing partners. Our products are pre-screened and validated.

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