With clients demanding income from their portfolios, Paul Pagnato has turned to alternatives.

Pagnato, founder and CEO of PagnatoKarp, a $3.5 billion RIA based in Reston, Va., said his average client has between 25 percent and 35 percent of their portfolios in alternative investments.

“We allocate to alts from both equity and fixed income,” said Pagnato. “How much we allocate really depends on the risk tolerance of the client, their cash flow needs, our perspective on the capital markets and our tactical overlay. It’s a combination of factors.”

For clients who need more cash flow, alternative allocations are usually carved out of the equity portion of their portfolio, said Pagnato, while those who desire more growth will have alternative allocations built in lieu of fixed income.

Pagnato, who will speak at the 9th Annual Inside Alternatives and Asset Allocation Conference from Sept. 24 to Sept. 25 at the Wynn Las Vegas, named six alternative investment opportunities that he offers to clients that are providing differentiated sources of income and returns:

Reinsurance

Reinsurance allows individual investors to benefit from insurance arbitrage, said Pagnato.

“Insurance companies make money based on premiums that are collected, minus the funds they have to pay out based on casualties,” he said. “Now the individual investor can participate in that. Whether they’re successful or not has more to do with hurricanes, tornados and other natural disasters and has a minimum bearing on whether the stock market is going up or down.”

With reinsurance, Pagnato said he targets an eight percent annual total return, with an annual cash flow of six percent.

Micro-Lending

First « 1 2 » Next