We explore some of the benefits of credit co-investing and highlight what we believe to be the elements for success for those seeking to integrate it into their portfolios.
Multi-Asset Class Investments: Where is the Best Fit?
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Recently, we discussed how unintended constraints can be created when investors apply traditional categories to alternative investments, highlighting how a multi-asset class approach may help avoid some of those constraints. But since multi-asset investments contain elements of multiple categories and cannot be placed neatly in one, it begs the question of how to “bucket” multi-asset investments in a portfolio. Here we discuss the different ways investors can think about their allocations and compare case studies of how clients have categorized multi-asset investments.
Applications of Multi-Asset Investing
The main objective of a multi-asset class strategy is to dynamically access the most compelling and diverse set of alternative investment opportunities in an efficient way. We have seen multiple approaches to categorizing multi-asset class investments within a portfolio, often fitting into strategy-specific or opportunistic buckets.
One could argue that exposure to alternatives is multi-asset class by nature. For example, a single hedge fund investment may invest in assets across the capital structure while a hedge fund program likely invests in many different strategies, sectors, and asset classes. Thus, it would make sense to consider multi-asset class investments as part of an absolute return/hedge fund strategy, on the shorter end of the liquidity spectrum.
At the other end of the spectrum, if a multi-asset class investment is structured to provide longer-term liquidity and a different risk/return profile, it may be categorized alongside private equity or special situations investments.
In either instance, investors who align multi-asset investments with a specific strategy allocation may benefit from the simplicity of the approach and get complementary exposure and deeper coverage within the respective markets.
However, opportunities may be missed due to category constraints or implementation time. It may take weeks to months to source an opportunity, perform due diligence, structure, and ultimately implement the investment.
To alleviate some of the governance burdens and more quickly access new opportunities, many institutions have created an “opportunistic” bucket in their allocation strategies. These allocations are positioned to pivot and capture the most compelling opportunities by evolving with the market environment.
Opportunistic multi-asset class investments provide exposure across sectors, geographies, and the liquidity spectrum. They may have an average liquidity somewhere in between short- and long-term and can access deals less frequented by traditional hedge fund and private equity funds.
However, even best-intentioned firms that take an opportunistic approach to multi-asset investing – particularly those who invest on a one-off basis – may miss opportunities created by a market dislocation, due to the time required to implement. We believe it takes a structured program, adequate resources, and sufficient expertise to implement multi-asset investments properly and efficiently.
Every Investor is Different
When it comes to bucketing multi-asset investments, it is up to each investor’s preferences. We have seen different definitions apply at different institutions, and what works for one may not work for another. But regardless of how they are allocated, a primary advantage of multi-asset class strategies is the ability to be flexible and dynamic.
Our clients most commonly bucket multi-asset offerings as opportunistic or alongside private equity / special situations strategies, but some have also fit into their hedge fund allocations. Below we compare how clients have implemented both strategy-specific and opportunistic approaches. We believe these examples may be informative for those considering how to bucket their own multi-asset allocations to alternatives.
|LP's Goal||LP's Approach to Bucketing||GCM Grosvenor Edge|
|Client A: Consultant Representing Multi-Employer Pension Plans||Provide clients access to unique opportunities in alternatives and fill a gap in liquidity profile||Created an opportunistic bucket for clients to access intermediate-duration, multi-asset investment, with allocations ranging from 0%-5% to 0%-20%||Invest in the 5-8-year liquidity range outside of private credit and create single point of entry for end investors|
|Client B: Public Pension Plan||Add opportunistic exposure to complement existing alternatives investments||Allocated to multi-asset class investment within existing hedge fund portfolio that allowed for less-liquid investing||Identify and invest in opportunistic investments that others may miss|
|Client C: High Net Worth Offering||Complete private equity exposure with unique opportunities||Allocated to multi-asset class investment within private equity program as a less-liquid private investment||Access less-trafficked investments that traditional private equity sponsors typically avoid|
|Client D: Sovereign Wealth Fund||Access differentiated opportunistic exposures to reduce coverage gaps||Allocated to program within opportunistic alternatives sleeve||Leverage global platform and deal flow to identify and invest in desired opportunities|
GCM Grosvenor Multi-Asset Approach
We have built our team and investment platform with the goal of capturing opportunities that we see across asset classes, regions, sectors, and other factors. We have a diverse and wide network of over 600 manager relationships that provide sourcing opportunities across alternatives strategies.
By creating multi-asset class strategies with liquidity that typically falls between traditional hedge funds and private equity (with a tilt towards private investments), we aim to provide clients with a differentiated risk return profile that is complementary to their overall portfolio.
Read more about our multi-asset capabilities within our Strategic Investment Group.
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Alternative investment asset class categories are effective for asset allocation purposes, but can block opportunities. We look at how investors with flexible mandates can access sources of return by pursuing opportunities that strict-mandate investors cannot.
For illustrative and discussion purposes only.
No assurance can be given that any investment will achieve its objectives or avoid losses. Past performance is not necessarily indicative of future results.
The information and opinions expressed are as of the date set forth therein and may not be updated to reﬂect new information.
Investments in alternatives are speculative and involve substantial risk, including strategy risks, manager risks, market risks, and structural/operational risks, and may result in the possible loss of your entire investment. The views expressed are for informational purposes only and are not intended to serve as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell securities by GCM Grosvenor. All expressions of opinion are subject to change without notice in reaction to shifting market, economic, or political conditions. The investment strategies mentioned are not personalized to your financial circumstances or investment objectives, and differences in account size, the timing of transactions, and market conditions prevailing at the time of investment may lead to different results. Certain information included herein may have been provided by parties not affiliated with GCM Grosvenor. GCM Grosvenor has not independently verified such information and makes no representation or warranty as to its accuracy or completeness.