CONTRIBUTORS
Tony Davidow, CIMA®
Senior Alternatives Investment Strategist
Franklin Templeton Institute
In the latest episode of the Alternative Allocations podcast series, I had the opportunity to examine the 60/40 portfolio with my good friend Brian Ullsperger, Managing Director at consulting firm Andersen. Brian admitted that his views have evolved over the years, and he now uses a diversified set of alternative investments to meet his client’s needs.
Brian’s evolution was informed by the types of clients he serves—primarily high-net-worth (HNW) investors, endowments and foundations—and the broader group of strategies available to him. While Brian still believes that asset allocation is critical for success, he has expanded his toolbox beyond the traditional 60/40 portfolio to include 10%-20% in alternatives. Brian’s asset allocation process has evolved beyond crude optimizers that are impacted by the robustness of the data, to focus more on the role of various investments, and whether the inclusion of an investment increases the likelihood of achieving client goals.
Brian noted that about three years ago, he simplified his approach and moved to three primary models. “We can tilt tactically when we feel there are opportunities for our clients. But we ended up going to three core models. And then we have what I would call an institutional model, which is really for those HNW individual clients who don't need the liquidity and can have more alternatives.”
The factors used to determine the right model include time horizon, liquidity needs and the client goals and objectives. Brian commented that, “. . . required return is important, and we still do a Monte Carlo analysis and stress testing.”
Brian and I discussed managing client expectations, especially during periods of uncertainty. Brian noted that, “Every client is an aggressive investor when we’re in a bull market and every client is incredibly conservative when the market’s going down.” He emphasized the importance of explaining the role of various investments including private equity, private credit, real assets, event-driven and managed futures, among others.
Brian was transparent as he described how he speaks to clients, builds portfolios and manages client expectations. Since many of his clients are HNW investors, and built their wealth through private companies, they expect access to the private markets and are often more comfortable with owning illiquid investments. While the basic tenets of modern portfolio theory remain intact, Brian has evolved his approach to meet his clients’ needs, using the versatility of alternatives to help achieve their goals and objectives.
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WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. Diversification does not guarantee a profit or protect against a loss.
Past performance does not guarantee future results.
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