• Constructing Pension Style Portfolios

Pension Funds, Endowment Funds and Ultra-High-Net Worth Families have actively included alternative investments in their portfolios as a strategy to improve risk-adjusted returns. They know alternative investments offer a number of key beneficial attributes:

  1. Alternative sources of income
  2. Alternative sources of capital growth
  3. Low correlation to publicly traded markets
  4. Lower portfolio volatility

Retail investors and more advanced Advisers/Portfolio Managers are increasingly following the lead of these sophisticated investors in their quest to achieve the above objectives. Most retail investors however have very different liquidity needs – pension funds have infinite time horizons and retail investors do not. The challenge therefore is to emulate these institutional portfolios using alternative investments while at the same time offering reasonable liquidity for life events and ongoing lifestyle needs.

A major misunderstanding amongst many retail investors is the notion that they need daily liquidity in their entire portfolio when in many cases they do not. The truth is that most Canadian investors need income, growth and access to a some of their capital for various purposes, planned and unplanned. The majority of a private client’s portfolio will normally reside with them for life, only partially being consumed during their retirement with the rest passed down to the next generation or donated for philanthropy. For most, their portfolio is truly intended to be held as a long-term asset.

Alternative asset classes like Private Mortgages, Private Asset-backed Loans and Private Real Estate are more challenging to invest in for the individual retail investor due to longer dating periods and often high minimum entry requirements. Our multi-strategy – multi-manager and multi-investment approach is an excellent way for retail investors to gain access to these highly-sought after private investments. Long term returns have been solid for these categories, and the liquidity and entry barrier that has prevented most Canadians from gaining access is dramatically reduced with our approach.

In our view, the traditional “60% stock/40% bond” portfolio model for private clients is the past. Alitis has worked intelligently to replace it with a New Paradigm approach that includes meaningful allocations to a diverse pool of alternative investments. The operative words here being diverse (diversification for safety with lowered correlation) and meaningful (a large enough allocation to make a difference).

Although individual retail investors may not have the ability to add 40-50% in alternative investments in the identical way leading pension funds like the CPP do, there are still plenty of opportunities that make sense for private client investors and their Advisers/Portfolio Managers. Alitis provides an incredible opportunity, opening the door for adding alternative investments to portfolios while still maintaining adequate diversification and liquidity for the specific shorter and longer-term needs of private

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