The Alitis Advantage
Lower Risk – Solid Returns
Alitis Investment Counsel is at the forefront of advanced wealth management. Not only are we early adopters in the inclusion of meaningful exposure to alternative asset classes in our portfolios, but Alitis utilizes these alternative asset classes as a way to construct safer, solid performing portfolios. We do not rely solely on stocks and bonds when constructing portfolios. Instead, we start with a small base of stocks and bonds and then carefully add a chosen mix of alternative investments, with a focus on diversification and downside protection. These alternative investments can diversify risks, significantly dampen portfolio volatility, and offer the potential for higher returns over the long term.
In the wealth management industry there are essentially two basic approaches used:
- Traditional – These are the portfolio managers who primarily use stocks and bonds to construct their Private Client, Institutional and Mutual Fund portfolios.
- Asset Allocators – These are the managers, such as Alitis Investment Counsel, who have moved beyond the simple stocks and bonds approach to include many other types of investments, collectively referred to as alternative asset classes. Alternatives include, but are not limited to, private real estate, mortgage investments corporations, private commercial loan funds, commodities, private equity, private infrastructure assets and hedge funds. Note: Our favorites are private real estate and private mortgages because property is tangible.
Asset allocators do hold stocks and bonds, but usually in much smaller proportions than traditional managers, thus allowing plenty of room in their portfolios for a well-diversified mix of alternative investments. In our experience, alternative investments are an excellent way to reduce portfolio risk and drive solid returns. This is exactly why most large pension funds, endowment funds and ultra-high net worth families own them. Since inception all of the Alitis pools have delivered solid returns with significantly less risk than traditional portfolios.
Is Asset Allocation a New Approach?
No, leading pension funds and endowment funds have diversified into alternative investments for the past 20 to 30 years or more Large pension funds such as the Canada Pension Plan, Ontario Teachers’ Pension Plan, Ontario Municipal Employees Retirement System, and many other provincial pension funds hold, and in most cases are increasing their exposure to alternative investments. Large endowment funds, such as those operated by Yale and Harvard Universities in the U.S., have been at the forefront in utilizing alternative investments in their investment portfolios. The Alitis approach is very similar to these top-performing endowment funds.
Why don’t mutual funds and retail investment advisers diversify more into alternatives?
The simple answer is that securities regulations, complacency, lack of availability, and a lack of specialized knowledge each play a role:
- Securities Regulations –Securities regulations exist to protect the average retail investor from investing in complex products with specific risks that they may not understand. For example, mutual funds and other investments issued under prospectus are not permitted to undertake certain investment strategies even though the strategy may reduce risk. As a result, many investments are only available to what are known as accredited investors – people or institutions with higher income, higher net worth, or higher qualifications with securities.
- Complacency– It is interesting to note that many groups of investors who do qualify to own exempt or alternative investments simply do not despite the known benefits of including additional asset classes. Perhaps some investors are not comfortable with alternative asset classes or maybe they are too afraid to do something different. Regardless, complacency surrounding the use of alternative asset classes can be detrimental to a portfolio.
- Lack of Availability – In certain type of asset classes or investments, such as infrastructure, private equity, and mortgage-related investments, availability may be an issue. Private investments may not be feasible for the average investor as there may be a shortage in the supply of quality products, investment minimums may be too high, or the holding period may be too long.
- Lack of Specialized Knowledge – A higher level of expertise and due diligence is required to effectively place capital in most alternative asset classes. Alternative investments tend to be relatively complex, and in many cases offer limited liquidity. It is essential that anyone selecting these investments has the qualifications and experience required to perform a thorough assessment of the risks and benefits.
To gain access to a more fully-diversified approach, investors will have to seek out leading edge portfolio managers such as Alitis. At Alitis, our clients receive the benefit of a meaningful allocation to alternative investments and fully discretionary management of their portfolio on a daily basis. This approach, in our strong opinion, is the only effective way investors can substantially reduce risk in their portfolios and drive stable returns.