r/AlternativeInvestors

I still see a few ideas repeated a lot in this space, even among people who have been allocating to alternatives for quite sometime.

A lot of people treat illiquidity as something bad that you always want to avoid...but it can actually work in your favor. Funds that don’t have daily redemptions are less likely to sell assets at the worst possible time. We literally saw the opposite happen in some of the private credit BDCs. Matching illiquidity to money that can actually wait ten years or more is key.

Another mistake is assuming alternatives are always riskier just because they are less transparent. Private equity and private credit often show lower volatility than public markets because they are not marked for marketing every day. So that doesnt translate to having less risk.....a loan that hasn’t been written down yet is not automatically safer than a public bond that moves with the market.

People also tend to treat all alternatives like they are one single thing. A senior secured loan, a venture fund and litigation finance have almost nothing in common. They need their own separate thinking and treating them as one thing leads to bad things.

The one that even experienced people get wrong most is thinking the illiquidity premium is automatic. Private equity has beaten public markets by like 5% a year on average. But thats just an average so its not guaranteed for every fund or every time period. The lockup is the price you pay for the chance to earn that premium....its not the premium itself.

So.. illiquidity, lower transparency and complexity are just trade-offs and they only pay off with the right manager, structure and time zone.

Hey guys,

Here’s my honest take on how much of your porfolio should be in alternatives right now.

The old 60/40 portfolio is basically dead for anyone who can access alternatives. Bonds don’t give the same protection they used to because stocks and bonds move together more often now.

I have just seen a survey on high-net-worth investors with an average of $17 million. The typical mix is around 60% public stocks, 10% bonds and cash and 30% in private markets and alternatives.

The richer you get, the higher that private allocation goes. It’s around 24% for people with $2–10 million ....and over 34% once you pass $25 million.

Institutions are also thinking differently and about 65% of them believe a 60/20/20 mix with 20% in alternatives, will beat the normal 60/40 going forward.

There’s still a big gap though. Data shows that most financial advisors only put about 7% into alternatives for their clients.

What matters more is your own situation. A well spread out 20–30% allocation to alternatives, good managers and the right time zone , is very different from putting the same amount into a few illiquid funds that you can’t touch for years.