Advisors should consider using alternative investments even in the face of some lackluster returns, say two veterans of the business.
Jeanie Wyatt, chief executive of South Texas Money Management, and Bill Carter, president of Carter Financial Management, have used alternatives for years.
Speaking Tuesday at Financial Advisor magazine’s Inside Alternatives conference in Denver, the two advisors said that their peers using alternatives should be flexible with allocations and opportunistic with asset classes.
Wyatt uses alternatives to complement traditional portfolios of individual stocks and bonds. She invests in commodities, gold, currencies, REITs, small emerging managers, private equity and venture capital. Her larger accounts usually have more alternatives (up to 20 percent), but she does not have a static allocation.
“That is a mistake,” she said. “We don’t have a 5 percent allocation and then force ourselves to fill that bucket.”
She analyzes everything a client owns, such as real estate holdings, taking that into account before recommending an alternative.
Carter started his career in the 1970s bear market, so he immediately began looking for alternatives, which led him to some limited partnerships. In the early ’90s, he got more involved with alternatives after a fellow trustee at Texas A&M University heard what Harvard was doing with its portfolio. After a consultant looked into it, the conclusion “was very compelling,” Carter said.
He uses hedge funds, private equity, real estate and long/short funds. Carter, too, has no set percentage he uses with clients, but it’s generally 5 to 20 percent, depending on the client.
Advisors shouldn’t jump in without proper due diligence and understanding of what they’re getting into.