Investments in alternative assets have grown tremendously over the past decade. Drawn to their professed portfolio benefits, investors have reallocated capital from more traditional assets, such as public equities and bonds, into various alternative investments. Some can hardly get enough. Yet, for all the affection, there’s nothing truly alternative about alternatives. They’re simply different flavors of the same investment options.
To be sure, I take no issue with alternatives. The more investment choices the better, as far as I’m concerned. However, properly understanding one’s risk exposures is vital for investing success. Treating alternatives as separate assets deserving of allocation, in my opinion, only obfuscates them. There’s only credit and equity risk, even in alternatives.
WHAT ARE ALTERNATIVES?
Alternatives encompass a wide variety of assets. In fact, it’s easier to describe what they are not than what constitutes one.