"People want to classify alternatives under one word, which isn't a good idea because different products can enhance portfolios in different ways," said James Bode, senior vice president and manager of alternative investments at BOK Financial. "You can use alternatives very aggressively or conservatively to enhance performance."

Bode sat in on a panel discussion about how independent advisors can access alternatives. The panel's moderator, Matthew Brown, CEO of alternative investments platform provider CAIS, asked audience members what issues keep them from engaging in alternative investments. Their replies included high minimums and costs, the lack of transparency and liquidity, and the need for ongoing due diligence.

One of the panel members, Jim Pupillo, managing director at HighTower Advisors, says his firm uses '40 Act mutual funds with alternative strategies for clients with less than $1 million. The funds are liquid trading vehicles with low minimums, making them accessible to the mass affluent. He added that HighTower is more comfortable using less liquid alternative strategies for wealthier clients.

A common question asked by advisors was how much of each client's portfolio should be allocated to alternatives. Brad McMillan, chief investment officer at Commonwealth Financial Network, said the amount should be between 10% and 30%, depending on the client's age and level of conservatism.

Another thing to ask, he said, is what somebody wants to achieve with alternatives. "What asset class are you going to withdraw from to allocate toward alternatives?" he asked.

A long/short equity strategy, for example, can provide diversification in the equity part of a portfolio, as could a call-writing strategy.

The importance of due diligence was stressed many times at the various sessions. "Clearly, upfront due diligence is very important, but it's the ongoing due diligence that's really critical because people and organizations change," said Brian Cunningham, president and CIO at 361 Capital. "If you have a multi-asset manager in your asset allocation and their strategy over five years has changed, that means there's a different set of risk exposure in your portfolio and that can change your alpha and beta risk."

Alternative investments are designed to provide non-correlation to traditional stocks and bonds. But it's an eclectic category that doesn't move in sync, which means there's still an overwhelming need to educate advisors on how to best use these products.

First « 1 2 » Next