Alternatives split industry

The level of alternative assets retail investors should hold remains a controversial issue, with the broad and contrasting views of the industry exposed in a high level debate.

Last week, a group of investment specialists were quizzed on the issue, but they failed to reach consensus on either a definition for alternative assets, circumstances in which they should be held or ideal allocations for retail investors.

“You only want to put clients into these assets who have a high risk tolerance and sufficient asset backing to make it worthwhile,” Principle Advisory Services managing director Les Fallick said at the van Eyk Research conference in Sydney.

This was in stark contrast to Platinum Asset Management director Andrew Clifford, who argued that “everyone” should have exposure to alternatives.

“The issue is what’s at the heart of the alternative investment,” Clifford said.

However, Fallick stated alternatives, and specifically private equity, have no downturn insurance.

“In general there is no downside protection and you’re taking a real punt in which all your equity is at risk, and you can easily lose all your dough,” Fallick said.

Vangard Investments head of retail Robin Bowerman said the definition issue around alternatives was critical for retail investors, as many view ‘shorting’ as something active managers already do.

“My concern is retail investors go into these things not knowing what the underlying investments are,” he said.

Merril Lynch portfolio manager Richard Davies said some investors actively seek out risk, and therefore advisers need to be aware as to what level of risk a client deems acceptable when chasing excessive returns.