Our Approach to Portfolio Management

The Altera Advisors investment team understands how different asset classes, funds and weightings impact each other, their performance and risk and how decisions ladder up to an investor’s objectives

The Asset Classes We Cover Inside Our Strategy

There are two main types of alternative investments. First are private assets such as private equity, private credit, infrastructure, private real estate. These asset classes are more complex and less frequently traded than public stock and bonds, and give investors access to additional sources of return. Hedge funds, the second type of alternative investment, operate mainly in public markets but use less traditional investment strategies such as short-selling and leverage to achieve greater returns.

Private Equity

Put simply, private equity investment funds take ownership stakes in private companies with the objective of selling this stake at a higher price at some point in the future beyond.

Leveraged Buyouts

Growth Equity

Venture Capital

Private Credit

Private credit fund targets the ownership of higher yielding corporate, physical (excluding real estate), or financial assets held within a private “lock-up” fund partnership structure.

Senior Lending

Mezzanine

Distressed

Real Estate

Investment real estate is real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence.

Multifamily

Office

Industrial

Hospitality

Storage

Infrastructure

Infrastructure can be defined as any ‘real asset’, taking the form of energy, roads, bridges, or anything that is conducive to building and maintaining society.

Greenfield

Brownfield

Hedge Funds

Hedge funds are alternative investments using pooled funds that employ different strategies to earn active return, or alpha, for their investors.

Leveraged Buyouts

Growth Equity

Venture Capital

More and more investors are shifting to alternatives to boost returns, generate income, and provide diversification from traditional investments to achieve their goals.

In the 1990s, there were ~8,000 domestically incorporated, US-listed companies. Today, that number is below 4,000. With fewer publicly-listed options, investors are seeking new opportunities in the private markets.

Source: Bloomberg

The private capital markets have created an ecosystem in which sponsors and entrepreneurs can scale their companies without having to go public. As a result, more investors believe that private markets have become effectively required for diversified participation in growth.

Source: Pitchbook

In the 1990s, there were ~8,000 domestically incorporated, US-listed companies. Today, that number is below 4,000. With fewer publicly-listed options, investors are seeking new opportunities in the private markets.

Source: Bloomberg

The private capital markets have created an ecosystem in which sponsors and entrepreneurs can scale their companies without having to go public. As a result, more investors believe that private markets have become effectively required for diversified participation in growth.

Source: Pitchbook

Why Should I Invest in Alternatives?

In today’s environment of low interest rates and uncertain economics, investors are challenged to find return-enhancing investment vehicles that fit their risk parameters. Simultaneously, they are seeking asset types that have a low correlation of returns versus their existing allocations. Alternative investments are increasingly being employed to accomplish these objectives.

  • 1

    Focus on Risk-Adjusted Returns

    Grow Total Return Through Access to a Broader Set of Investments and Strategies

    Despite unique risks and considerations, alternative investments can be useful tools to improve the risk-return characteristics of an investment portfolio. They can increase diversification and reduce volatility, given low correlations to more traditional investments, and they can offer the potential for enhanced returns due to the wider investment opportunity set.

    Moving the Efficient Frontier

  • 2

    Portfolio Diversification

    Diversify Your Portfolio with Lower Correlating Assets`

    Recognizing the challenge of meaningfully diversifying a portfolio, investors commonly turn to alternative strategies that have the potential to generate returns with a low (or lower) correlation to traditional components of a portfolio. Investors with records of attractive long-term, risk-adjusted returns have typically utilized as many low-correlating, high performing asset classes as possible

    Source: J.P.Morgan (Data as of 8/31/2020)

    Public and Private Asset Correlations

  • 3

    Increased Income

    Alternatives May Offer Higher Yields – Especially During Periods of Low Interest Rates

    In today’s environment of exceptionally low interest rates, finding 4% yield – a common baseline for yield portfolios – from traditional asset classes such as core bonds may be more difficult than ever. Investors can bridge the resulting “income gap” with yield-oriented asset classes. Opportunities exist to introduce more diversified sources of income potential into a portfolio.

    Source: Pitchbook (Data as of 9/30/2019)

    Private Credit Outperforms Public Bonds

Our Process

When you are not constrained arbitrarily to participating solely in public debt and equities, it frees up opportunities to tune a client’s portfolio to their specific goals. We work off two basic models (a) Income-Oriented and (b) Growth, but with dozens of tilts available we can match virtually any client constraints. Our approach to impact investing has also produced several overlays that we can apply to our portfolio construction to better align outcomes.

Building the Portfolio

There are countless ways to invest, but many investors do themselves no favors by failing to ask the most important questions first: What are my objectives? Why am I investing? Before we research, plan, and implement an investment strategy, we first understand what you plan to do.

Defining Your Goals and Objectives

Before we recommend an investment strategy, we think it’s important to get to know you and what you are working toward. We have a systematic approach that helps you identify and prioritize your goals. Then, together you and your advisor can build a strategy to help achieve them.

Your Comfort With Risk

We want to understand how much risk you are willing to take and how much risk you actually need to take, which are all important factors when selecting a portfolio objective. By knowing your comfort level with risk, you can set realistic expectations and stick with your long-term strategy.

What Are Your Liquidity Needs and Time Horizon

Another major factor to consider when selecting a portfolio objective is when you’ll need the money. Typically, the longer you have to invest, the more you can handle illiquidity and higher risk investments. Since each goal may have a different time horizon, each may have a different portfolio objective.