Post-2008, family offices looking to reduce volatility and provide steady returns to clients are turning to alternative investments, according to an expert panel speaking at the Canadian Alternative Investment Forum in Toronto on Thursday.
“When it comes to wealthy families, what we’ve learned is if the portfolio is too volatile in different parts, it makes it difficult for them to hold on through challenging tail events like late 2008,” said Thane Stenner, director, wealth management, portfolio manager, Stenner Investment Partners within Richardson GMP Ltd. “With that in mind, alternatives help to smooth out the overall portfolio.”
Stenner says that prior to 2008, alternative investments would make up roughly 20% or less of a client’s portfolio. Today, alternative investments make up anywhere from 20% to over 50% of his client portfolios. Part of the reason for the switch, said Stenner, is because the alternative investment industry has come of age since the financial crisis and is now better understood.
“During that whole crisis period I think, from what I have observed, the alternative [investment] industry has grown up a little bit,” he said. “There’s a lot more flexibility provisions provided, people became a lot more aware of constraints of different instruments.”
Since 2008, the panelists’ family offices have also had to change what kind of alternative investment they include in clients’ portfolios. Sloan Levett, president of Fuller Landau Family Office Services says that prior to 2008, his firm placed an emphasis on private equity, however in the aftermath of the financial crisis investments offering more liquidity have become desirable.
“We’re now taking a much harder look for investments that really aren’t tied to lock-up periods,” says Levett. “I think for us that’s a very high priority, to know that we can get at our money in a reasonable time period.”
Levett says his firm has been investing in assets such as mortgages, high yield funds, U.S. real estate, parking lots and insurance policies.
Another alternative investment that many family offices are interested in is hedge funds. Hedge funds work for family offices, said Mike Jamani, president, Tricap Investors, because their broad spectrum of strategies provides client portoflios with more flexibility. “It is easier for us to build out the kind of mixed strategy and asset class that we might want in a portfolio by using hedge funds,” said Jamani.