Fahad Hassan, chief investment officer at Albemarle Street Partners, is more positive on alternative investments, but says investors need to be aware that they tend to come with higher fees than conventional funds, and “are hostage to the financial backdrop”, rather than a diversifier away from economic conditions.
The alternative assets he owns right now are global infrastructure investment trusts. He prefers the investment trust structure for these as it ensures liquidity, and says investors looking at the alternatives need to be mindful that by their very nature those assets will be less liquid than equities or bonds.
Yield control
Despite his comparative positivity around the asset class, Hassan has reduced his infrastructure holdings in 2023 as a result of higher bond yields.
Fahad Kamal, chief investment officer at SG Kleinwort Hambros, is generally pessimistic on the outlook for the global economy and for equity and bond markets.
This is part of the reason why the portfolios at his firm presently have around 5 per cent allocated to alternative assets.
Among those on which he is keen are infrastructure funds, but also real assets funds that invest in physical roads and prisons, and supermarkets.
The funds in which he invests essentially own these assets and rent them to government agencies or private companies.
Kamal is keen on the investment case for these assets as the rental income is often linked to inflation, and so holds its value.
The capital for his allocation to real assets has come from reducing his exposure to bonds, as the income from bonds is not generally inflation-linked.
James Klempster, deputy head of the multi-asset team at Liontrust, says assets such as gold and infrastructure, “can have a role to play, but they do a very specific job, usually around inflation protection, and so there are times when that job is more important than others”.
Alex Hardy, a multi-asset investor at Momentum Investment Management, is another who is keen on real assets for their ability to protect against inflation, but he is very sceptical of the other approach to alternative assets, which involves allocating capital to hedge funds.
He says such strategies rely on an individual’s ability to “get the macroeconomic picture right, but the problem is that actually very few can do that consistently.
"We would rather own companies that are well-run; those businesses, over the long term, find a way to thrive, and we think that’s a better approach than trying to get the economic outlook correct.”
Hardy says his allocation to real assets funds is “strategic” and not just a function of the present, or recent, market conditions.
David.Thorpe@ft.com
