A significant allocation to alternatives produces a more resilient portfolio, according to a leading QIC investment manager.
The skilful addition of alternative assets to diversified portfolios should produce “robust portfolios which can handle just about everything,” according to QIC head of alternative investments James Dick. Dick, who describes himself as a “proud beta manager,” has helped QIC clients – including many sovereign investors – construct portfolios which, although perhaps less liquid than traditional portfolios, are there “for the long haul.”
“Our story with alternatives really started with the tech bubble, and we have certainly increased our capabilities since the GFC, because alternatives were important during the GFC and they are probably going to be more important going forward,” says Dick.
“That old formula that you made money from equities in good times and bonds during a recession doesn’t hold true any more. “The most successful assets in the last few years have been the liquid alternatives – listed property and infrastructure – which are also real assets.”
While a large number of portfolios will only have an allocation of around 4 per cent to alternatives, others – from some of the more long term investors – have around a 30 per cent allocation not just to property and infrastructure, but also to timber and the so-called “Catastrophe” insurance bonds.
“I think the whole point of what we are doing is that we build a portfolio which is diversified enough that it doesn’t matter what happens next,” says Dick. While other parts of QIC – the so-called boutiques within the organisation – have alpha managers, Dick says the alternatives universe lends itself to the beta approach. “I always say that beta is average alpha,” he says. “And I think the good alpha managers would agree me with me, because no-one wants to be average.”