Why consider alternative solutions today
We have entered a new market regime characterised by higher rates and inflation, the end of quantitative easing and elevated market volatility. In this context, several alternative strategies are seeing an improved opportunity set that should help them deliver attractive returns. The many challenges we face today, such as geopolitical instability, the general trend away from globalisation and higher levels of inflation, could last for some time. These uncertainties could have a pronounced short-term impact on asset prices and should be considered by investors in their asset allocation decisions.
Many things have changed in alternatives since the global financial crisis. What used to be considered a high-risk, unregulated, opaque industry with poor liquidity and expensive fees has witnessed many developments. Increased regulation with the emergence of alternative UCITS funds has brought more transparency and improved liquidity. With the increased involvement of institutional investors, fees have become more competitive, and the risk/return profile of alternative portfolios has become more conservative. Ultimately, these changes imply better risk management for investors.
Key benefits of alternatives investments
Alternative investments offer various characteristics – or profiles – each of which provides investment benefits in the context of a global portfolio allocation. In general, the addition of carefully selected alternative strategies should improve the risk/return profile of a portfolio. In the current environment of volatility both in equity markets and in interest rates, alternative solutions can be split into three main profiles:
- Asymmetric equity: capturing some of the market upside but with controlled volatility and limited drawdowns.
- Fixed-income alternatives: accessing fixed-income-like risk/return profiles with limited correlation as a substitute for low-yielding investments.
- Diversifiers: accessing non-traditional sources of return that are decorrelated from traditional asset classes.
UBP AIS investment philosophy and process
Hedge funds used to be considered as one single bucket of alpha-generating strategies used to complement traditional market beta in a client’s asset allocation. Given how the industry has evolved, we now split alternatives into three buckets: Pure Alpha, Strategy Alpha, and Style Factor. Each bucket has different costs and liquidity profiles, allowing investors to access alternatives more efficiently. We believe clients should accept higher fees or less liquidity only in exchange for clearly identified added value.
Our 7-step process capitalises on UBP’s strengths:
- Asset allocation: the initial stage of the process setting out client objectives, guidelines, and risk parameters.
- Investment research: sourcing high-quality managers in all areas of the alternative universe.
- Operational due diligence: reducing the risk of manager failure and fraud through a consistent operational risk framework.
- Portfolio management: building a diverse and robust portfolio solution aligned with investor objectives and guidelines.
- Operations and back office: a strong and experienced middle office with the option of using leading external service providers.
- Risk management: threaded throughout the investment process at underlying manager and portfolio levels.
- Client servicing: experienced, dedicated resources focused entirely on AIS clients.
Our objective is to offer clients a broad range of investment solutions that fit their objectives and constraints. This includes both multi-manager solutions, expressed either through customised mandates or commingled products, and single-manager solutions, giving access to attractive strategies thanks to the partnerships we have developed. Our solutions are available in both regulated and unconstrained formats.