Alternative investments have rapidly gained traction within investment programs as sources of diversification and complementary income to traditional asset classes. As institutional investors adopted “alts,” they also embraced new classifications for these investment types, sorting them into categories of hedge funds, private equity, alternative credit, infrastructure, and real estate.
For asset allocation purposes, categories are highly effective. By identifying the long-term characteristics of individual asset classes, institutional investors can allocate to help optimize their specific goals – minimizing loss, managing volatility, maximizing return, or diversifying income, according to their priority.
But that allocation-optimizing system does not work quite as perfectly when a category encompasses a varied range of characteristics, as happens in multi-asset investing. Facing a category that is harder to pinpoint in terms of characteristics, some institutional investors lump multi-asset strategies in an “opportunistic” bucket, while others avoid them altogether.