The right alternative asset fund manager makes all the difference
An investor primer on alternative asset management (Part 9 of 12)
Alternative assets have some drawbacks too
Not everything about alternative assets is good. Alternative assets have their own sets of drawbacks. The main one is the performance variation in alternative assets. On average, alternative asset funds have many benefits. But, the performance of the best and worst alternative assets may be hugely different.
The chart above makes this clear. It maps the returns of the top decile (10%) and the bottom decile funds—traditional and alternative—and the variation between these two. Fixed income, or debt, vary least. More specifically, US government securities-focused debt-fund managers exhibit the least variation. This is followed by debt funds focused on emerging markets and corporate debt. Equity-focused funds, in order of large-cap equity, small-cap equity, and emerging market equity, have the next-best performance spreads.
Alternative assets vary widely
In alternative assets, real estate-based funds perform with the least variation. In fact, real estate exhibits less variation than corporate debt. Hedge funds and private equity vary most.
The main thing to note is that the best-performing funds generate far higher returns than the worst-performing funds. For example, top-decile private equity funds return 38%, or 19 times the return of top-decile US government bond-focused funds. But, bottom-decile private equity funds return -22.2%, or 8.54 times lower than the return of bottom-decile US government bond-focused funds.
This variation suggests that picking the correct fund is important. So is choosing the right asset fund manager. Making the right choices at firms such as BlackRock (BLK), Invesco (IVZ), Blackstone (BX), or KKR & Co. (KKR) helps better-performing funds increase the assets under management.
Investors that are unsure about which alternative asset fund to pick can invest in an alternative asset-focused ETF such as the IQ Hedge Multi-Strategy Tracker ETF (QAI).
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