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The pros aren’t so sure ShareShare Article via FacebookShare Article via TwitterShare Article via LinkedInShare Article via Email Markets * Pre-Markets * U.S. Markets * Europe Markets * China Markets * Asia Markets * World Markets * Currencies * Cryptocurrency * Futures & Commodities * Bonds * Funds & ETFs Business * Economy * Finance * Health & Science * Media * Real Estate * Energy * Climate * Transportation * Industrials * Retail * Wealth * Sports * Life * Small Business Investing * Personal Finance * Fintech * Financial Advisors * Options Action * ETF Street * Buffett Archive * Earnings * Trader Talk Tech * Cybersecurity * Enterprise * Internet * Media * Mobile * Social Media * CNBC Disruptor 50 * Tech Guide Politics * White House * Policy * Defense * Congress * Equity and Opportunity * Europe Politics * China Politics * Asia Politics * World Politics CNBC TV * Live Audio * Latest Video * Top Video * CEO Interviews * Europe TV * Asia TV * CNBC Podcasts * Digital Originals Watchlist Investing Club * Trust Portfolio * Analysis * Trade Alerts * Meeting Videos * Homestretch * Jim’s Columns * Education * Subscribe * Sign In PRO * Pro News * Pro Live * Stock Screener * Market Forecast * Options Investing * Subscribe * Sign In Menu * Make It * select * ALL SELECT * Credit Cards * Loans * Banking * Mortgages * Insurance * Credit Monitoring * Personal Finance * Small Business * Taxes * Help for Low Credit Scores * Investing * SELECT * All Credit Cards * Find the Credit Card for You * Best Credit Cards * Best Rewards Credit Cards * Best Travel Credit Cards * Best 0% APR Credit Cards * Best Balance Transfer Credit Cards * Best Cash Back Credit Cards * Best Credit Card Welcome Bonuses * Best Credit Cards to Build Credit * SELECT * All Loans * Find the Best Personal Loan for You * Best Personal Loans * Best Debt Consolidation Loans * Best Loans to Refinance Credit Card Debt * Best Loans with Fast Funding * Best Small Personal Loans * Best Large Personal Loans * Best Personal Loans to Apply Online * Best Student Loan Refinance * SELECT * All Banking * Find the Savings Account for You * Best High Yield Savings Accounts * Best Big Bank Savings Accounts * Best Big Bank Checking Accounts * Best No Fee Checking Accounts * No Overdraft Fee Checking Accounts * Best Checking Account Bonuses * Best Money Market Accounts * Best CDs * Best Credit Unions * SELECT * All Mortgages * Best Mortgages * Best Mortgages for Small Down Payment * Best Mortgages for No Down Payment * Best Mortgages with No Origination Fee * Best Mortgages for Average Credit Score * Adjustable Rate Mortgages * Affording a Mortgage * SELECT * All Insurance * Best Life Insurance * Best Homeowners Insurance * Best Renters Insurance * Best Car Insurance * Travel Insurance * SELECT * All Credit Monitoring * Best Credit Monitoring Services * Best Identity Theft Protection * How to Boost Your Credit Score * Credit Repair Services * SELECT * All Personal Finance * Best Budgeting Apps * Best Expense Tracker Apps * Best Money Transfer Apps * Best Resale Apps and Sites * Buy Now Pay Later (BNPL) Apps * Best Debt Relief * SELECT * All Small Business * Best Small Business Savings Accounts * Best Small Business Checking Accounts * Best Credit Cards for Small Business * Best Small Business Loans * Best Tax Software for Small Business * SELECT * All Taxes * Best Tax Software * Best Tax Software for Small Businesses * Tax Refunds * SELECT * All Help for Low Credit Scores * Best Credit Cards for Bad Credit * Best Personal Loans for Bad Credit * Best Debt Consolidation Loans for Bad Credit * Personal Loans if You Don’t Have Credit * Best Credit Cards for Building Credit * Personal Loans for 580 Credit Score or Lower * Personal Loans for 670 Credit Score or Lower * Best Mortgages for Bad Credit * Best Hardship Loans * How to Boost Your Credit Score * SELECT * All Investing * Best IRA Accounts * Best Roth IRA Accounts * Best Investing Apps * Best Free Stock Trading Platforms * Best Robo-Advisors * Index Funds * Mutual Funds * ETFs * Bonds * USA * INTL Search quotes, news & videos Watchlist SIGN IN Create free account Time to invest in alternative assets? The pros aren’t so sure ShareShare Article via FacebookShare Article via TwitterShare Article via LinkedInShare Article via Email Markets Business Investing Tech Politics CNBC TV Watchlist Investing Club PRO Menu TIME TO INVEST IN ALTERNATIVE ASSETS? THE PROS AREN’T SO SURE Published Mon, Jan 1 20246:34 PM EST Amala Balakrishner@_amalabk WATCH LIVE ShareShare Article via FacebookShare Article via TwitterShare Article via LinkedInShare Article via Email From family offices to financial advisors and beyond , interest in alternative assets appears to be growing — but the pros appear mixed on whether retail investors should get invested. For Caesar Sengupta, CEO of financial services firm Arta Finance, there is “incredible value in private markets” and the assets shouldn’t be overlooked. “Without a doubt, most investors should be looking beyond public market assets to alternatives, which are becoming much more accessible as investments,” Sengupta from Arta Finance — which describes itself as a digital family office — told CNBC Pro. Alternative investments are assets that do not fall into the conventional categories of stocks, bonds, commodities and cash. Instead, they include the likes of real estate, private equity, venture capital, private debt, hedge funds, futures, cryptocurrencies — and even collectors’ items like art, jewelry and watches. “If we look at how sophisticated investors — like family offices and large endowments — are dealing with markets, you will see that they have a much larger allocation towards private markets and alternative assets compared to the average investor,” Sengupta said. For him, the benefit of investing in alternatives is two-fold: on the one hand, it increases an investor’s level of diversification; on the other, the assets can be less volatile than public market instruments as they are not “strongly influenced by day-to-day developments.” “Private market assets are often less correlated with public market assets which increases your diversification and reduces volatility,” Sengupta, who was speaking on Nov. 30, said. Not everyone agrees, however. Robert Almeida, global investment strategist at MFS Investment Management, says that dabbling in alternative investments offers “fake diversification.” “There’s an implication in the industry, that private offers higher returns with more diversification — that just doesn’t make sense. The implication is that private has higher returns with less volume and in turn [a] diversification benefit. But it’s the return on the business and the volatility of those returns that determines its financial asset returns, not whether the business’ financial securities are public or private,” he said. Almeida’s suggestion is to look at assets beyond the public and private classification and make investments based on their merits like the viability of the business and its return on capital, instead. That way, the returns - and valuations - that investors can enjoy would be much higher. ‘Illiquidity premium’ Higher inflation levels mean it has become easier for some retail investors to access alternative assets in recent years. In the U.S., people with an earned income of at least $200,000 a year (or $300,000 with a spouse) are deemed accredited investors who can invest directly in private credit or private debt — and these thresholds aren’t indexed to inflation. However, alternative investments pose their own risks, especially for less sophisticated investors. For example, private investments may be required to publish fewer disclosures to investors. Alain Forclaz, deputy chief investment officer of multi-asset at Lombard Odier Investment Managers, highlighted several challenges with alternatives for retail investors. “Investing in private markets — unlike public markets — means you have an illiquidity premium because you lock your capital up for 5-10 years which forces you to have a long-term horizon,” the portfolio manager added. Forclaz also said that alternative investments are just as sensitive to market cycles as more traditional asset classes, meaning they may not necessarily be an effective hedge to broader volatility. Steen Jakobsen, chief investment officer at Saxo, agrees, saying that retail investors need to err on the side of caution when dabbling in alternatives. “The yield of alternatives are correlated to the illiquidity of the assets, so the longer you go out on liquidity access, the more upside you can potentially have. But, I think you need to be more than a private retail investor to go into these — my advice is don’t buy it, even if it’s priced to perfection,” he said, adding that he is bullish on fixed income and commodities for 2024. Adding alternatives to a portfolio For those interested in alternatives, the question arises of how to introduce them into a traditional portfolio mix. Data from Arta Finance indicates that a traditional portfolio of just stocks and bonds has annual returns of around 6.9%, on average. In contrast, returns are around 9.8% for portfolios that include alternative assets like private equity, private credit, and real estate. JP Morgan, meanwhile, found that tweaking a traditional portfolio mix to have 30% in alternatives, 40% in equities and 30% in fixed income boosted annualized returns from 8.4% to 9%, and significantly reduced volatility. While the amount allocated to each asset class is dependent on an individual’s risk appetite and life stage, Sengupta said he wished he had created a portfolio mix in his 30s where investments to private markets were made over four or five tranches to eventually account for 20% of his investments. The rest of his portfolio would have been investments in equities and fixed income. “What that would have done is give me distributions, increase my cashflow and given me better diversification,” he said. More in Pro 1. These stocks will be the biggest S&P 500 winners of 2024, according to analysts 2. Here’s where to invest $50,000 in the new year, according to the pros 3. Goldman Sachs says European Big Oil is at a ‘turning point’ — and names 3 top picks 4. Top Wall Street analysts suggest these 3 dividend picks for 2024 5. These stocks will be the biggest Dow winners of 2024, according to analysts MORE IN MACRO INSIGHTS FOR INVESTING Goldman Sachs says European Big Oil is at a ‘turning point’ — and names 3 top picks Amala Balakrishneran hour ago It’s a big election year around the world. Here’s where the pros are watching Amala Balakrishner The economy in 2024: A soft landing is in sight, but not without some danger ahead Jeff Cox Read More * Subscribe to CNBC PRO * Subscribe to Investing Club * Licensing & Reprints * CNBC Councils * Supply Chain Values * CNBC on Peacock * Join the CNBC Panel * Digital Products * News Releases * Closed Captioning * Corrections * About CNBC * Internships * Site Map * Ad Choices * Careers * Help * Contact * * * * * * * NEWS TIPS Got a confidential news tip? We want to hear from you. 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