Alt Blend

Aligned with George Santayana’s quote from A Historic Blogpost (Part 1), today’s quote by Oscar Wilde is seemingly of the opinion that history can be misleading at best or intentionally false at worst. Perhaps a good approach – which has much broader application beyond that of history – is to employ healthy skepticism, seek multiple viewpoints (especially from those who disagree!), and try to understand a variety of data before forming a steadfast opinion. We’d be wise to keep this in mind as we continue our foray into the world of alternatives and the mission of identifying quality managers/strategies.

Links mentioned in this episode:

• http://altblend.com

Alternative investments may seem like a recent phenomenon to many investors, but the concept dates back over 150 years to such endeavors as the Transcontinental Railroad (1852) and the creation of US Steel (1901). Having just celebrated the 4th of July, it’s a good time of year to reflect on the rich history and past generations that have brought us to where we are today. From an alts perspective, it’s a good opportunity to examine how these investments evolved to their current state and my personal journey of introducing such strategies into the lives of our clients. In this edition of alt.Blend, we’ll try and do just that.

Links mentioned in this episode:

• http://altblend.com

While each day we may get to decide between basic choices we’ve always had – like what to eat for lunch or what clothes to wear – sometimes our available options materially change because our legal framework evolves. There are three distinct qualifications in the US (under the SEC) that determine who can invest in what type of investment offerings: the accredited investor, the qualified client, and the qualified purchaser. I believe the idea is to protect the average person (aka retail investor) from more “risky” offerings, like private equity, venture capital, and hedge funds. And maybe the intent is good, but – as we’ll see in exploring this issue in more detail – it’s built mainly on the premise that wealth is the same thing as investment sophistication, and that is simply not true.

Links mentioned in this episode:

• http://altblend.com

In this special audio-only edition of alt.Blend, I was joined by Jeremiah Riethmiller, Chief Investment Officer (CIO) at Sarian Strategic Partners (our Hightower colleagues), and Gregg Loprete, Portfolio Manager (PM) at Water Island Capital.

We touched on a few topics, including:

We did our best to alleviate some of our standard jargon and kept it to a relatively high level, but I hope the discussion gives you a “fly on the wall” experience of what it’s like to be walked through an investment strategy and trade examples directly by a PM. In essence, it’s a virtual field trip that allows you to play the role of a novice investment analyst sitting in on a manager meeting.

Until next time, this is the end of alt.Blend.

Links mentioned in this episode:

• http://altblend.com

In Part 1 of this 2-part series, we reviewed the extreme lack of consistent outperformance among domestic equity funds. In this edition, the plan is to see if the same holds true within alternative investments or if we can uncover any segments where consistent outperformance is “a thing.”

Links mentioned in this episode:

• http://altblend.com

The New York Times recently featured an article about an apparently common emotional reaction to the ongoing socially restricted recovery:  There’s a Name for the Blah You’re Feeling: It’s Called Languishing. Languishing, I learned, is the state of existing somewhere in between living your best life and the depths of depression – or, more succinctly, “the absence of well-being.” And, rather than languishing indefinitely, there’s also evidence to suggest that this emotional middle-ground can lead to increased incidence of depression in the future.

Given our coverage in the previous alt.Blend of how the status quo is unlikely to persist into the future, this emotional-status migration is not surprising. Some thriving today may be in the depths of despair a few years from now, and the opposite may very well be true for some currently enduring painful depression. And those now languishing may find they have moved in one direction or the other, for better or worse.

Links mentioned in this episode:

• http://altblend.com

Contact: [email protected]

One doesn’t need advanced physics to understand that there are many possible courses our lives and investments may follow; the challenge is figuring out which are most likely to occur. Ultimately, the possibilities are endless, but there will only be one path with one outcome. Regardless of whether infinite parallel worlds exist, we are relegated to only one of them, and we must plan accordingly. At the same time, there is utility in contemplating a broader set of potential outcomes to help enhance risk management on multiple levels.

The universal financial truth is that we can develop a financial plan specific to our unique circumstances and desires. Further, that plan can become more robust by a) considering a broader set of outcomes to drive the allocation framework itself and b) incorporating the world beyond stocks and bonds into our investment selection, aka the alternative investment universe.

Links mentioned in this episode:

• http://altblend.com

This podcast is hosted by ZenCast.fm

When it comes to hedge-fund blow-ups, our goal is first to avoid them altogether and then secondarily limit their impact on a portfolio if this situation unexpectedly occurs. It is not a matter of embracing normal volatility because it is not normal volatility; instead, blow-ups are one-off, unrecoverable situations that can essentially only be mitigated via portfolio construction. But we can learn valuable lessons from them, and so we forge ahead with this topic.

Here we go…

• http://altblend.com

Having your own “stuff” can be nice. It’s a source of independence, of freedom. Eventually, we grow up, venture out from our parents’ protection, and make our own homes. Free at last. In some places, you can even dig a well and have your own water supply. And now Elon Musk can deliver you a solar roof, and you can generate your own electricity. Living off the grid: now that’s freedom!

Off-the-grid living sounds excellent, but it’s also wise to build-in contingency plans, for instance: staying within a few miles of friends or family, just in case help is needed; having a friendly neighbor and a long hose for when the well-water isn’t flowing so good (see what I did there?); or, for those opting for solar power, maintaining a connection to the grid in case of emergency.

It took an unexpected winter storm to expose the weakness, but, in financial terms, the Texas power-plan was “short volatility,” which is to say that the strategy worked well until it didn’t. And therein lies the rub.

There are some classic examples of short volatility (aka “short vol”) gone wrong in the Alts world, and it’s a good idea to revisit them from time-to-time to learn from past mistakes. Inspired by recent events, in this edition of alt.Blend, we’ll examine some of the greatest hedge-fund blowups of all time.

Here we go…

Links mentioned in this episode:

• http://altblend.com

In this fifth and final post in our miniseries on portfolio longevity, we’re continuing with our overview of the B-squad – various components that can play a role in the fixed income portfolio of the future. We’ll cover more of the credit spectrum and even touch on private real estate, including strategies that can and should require some degree of liquidity sacrifice for proper execution.

Links mentioned in this episode:

• http://altblend.com