Just two months on from the launch of its alternatives platform, Escala has seen a “significant uptick” in its alternative investment allocation, jumping from around 14 per cent to 35 per cent across its approved product list (APL) in just over three years.
According to the firm, growing interest in alternatives is due in part to the asset class’s ability to enhance returns, reduce volatility and offer key portfolio diversification opportunities for clients.
Noting the continuously expanding range of private markets available, Escala alternatives investment analyst Stephen Dickinson said the firm sees this as “fertile ground” for portfolio diversification.
“We see alternatives not just as a complement, but as a core part of a diversified portfolio,” he noted. “As long as clients can accommodate the illiquidity, the potential for superior risk-adjusted returns is significant,” Dickinson said.
As a result, Escala said that private equity, private credit, venture capital, infrastructure, property and royalties will “form the backbone” of the firm’s alternative suite.
Hedge funds are also set to play a role in the firm’s alternative strategy, though it noted that newer entrants, such as digital assets, art and collectibles, are also receiving growing interest in this space.
By increasing the firm’s use of private assets, Dickinson said they are expanding the “investable universe” for clients, granting them access to a “broader range of sectors, geographies and companies, many of which aren’t available in public markets”.
With global events, namely in the US, having had significant impacts on markets earlier in the year, diversified portfolios that are able to ride out volatility are proving more crucial.
To this point, Dickinson noted that private markets generally lack a strong correlation to listed assets, providing necessary protections against public market drawdowns, while others such as real assets and digital infrastructure can act as effective inflation hedges.
“We have observed an increasing demand for global diversification, with our clients seeking access to sophisticated, overseas private market strategies,” he said.
“Evergreen fund structures offering continual capital raising without fixed-term limits have resonated particularly well with our clients seeking smoother deployment and redemption mechanics.”
As Australia’s population ages and more people approach retirement, liquidity becomes a key issue, and while some believe that this can be a challenge for alternative assets, Dickinson suggested that when handled correctly, this can be overcome.
“We don’t view these as risky investments per se. The key is matching them to the client’s liquidity needs and investment horizon,” he said.
“Ultimately, our approach is about being strategic to deliver superior returns to our clients. Private markets offer tremendous opportunity, but the key is thoughtful portfolio construction and alignment with our client’s long-term wealth building goals.”
