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John TuohyAcuvest Limited
AlternativesA framework for making decisions about alternatives
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1. What are alternative investments?
2. Are institutional investors allocating significant
assets to alternatives?
3. What is the investment case for alternatives?
4. Where do alternatives fit in a portfolio?
5. What are some of the questions that need to be
considered in evaluating a particular investment?
Key questions
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Pension fund assets > $36 trillion (top 16 countries).
Significant increase in allocation to alternatives (top 7 markets).
Asset allocation
Source: Global Pension Asset Study – Towers Watson 2015
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Distribution of alternative assets
All Institutions Pension Funds
Hedge Funds 35% 19%
Private Equity 29% 35%
Property 24% 35%
Illiquid Credit 3% 2%
Commodities 3% 1%
Infrastructure 5% 8%
Other 1% -
100% 100%* As at end 2013.
Source: Global Alternatives Survey 2014 – Towers Watson
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Bond yields
Germany Yield EUR LIVE Ireland Yield EUR LIVE
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32
- 0.25
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
Source: Barclays Capital’s Curve.
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Markets have had a good run
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20 Year
Sources: DATASTREAM, BOFA ML EUR BROAD MKT. 10+Y (E) - TOT RETURN INDEX, MSCI AC WORLD - TOT RETURN INDEX (Local Currency)
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Expected returns
Investors need to take more risk, or take risk more efficiently, to achieve comparable returns
Europe Traditional
Portfolio Total Return Risk Free Rate Beta Alpha
Since 197010.0% = 5.5% + 4.5% + ?
Expected?
= 0.3% + 3.3% + ?
Source: Bridgewater
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Portfolio construction framework
Return Objective
GrowthGrowth
DefensiveDefensive
Managed Growth /
Risk
Managed Growth /
Risk
Equity Risk Premium
Illiquidity Risk Premium
Long OnlySmart BetaLong/Short
PropertyPrivate EquityInfrastructureIlliquid CreditCredit Risk Premium
Multi Asset Funds
DGF / Abs Return FundsGTAAGlobal MacroWhich Can Include:•Commodities And•Currencies
Bonds
Defensive StrategiesManaged FuturesTail Risk Insurance
CorporateHigh YieldEM Debt
Highly Rated Eurozone Gov. Bonds
Managing Risk
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