Alternative assets under scrutiny

Investment in alternative funds has grown very significantly globally. These instruments provide exposure to private capital and debt markets—that is, ones not traded on open exchanges—under regulated structures and expert management by specialized managers. Among the characteristics most valued by investors are the high return potential and the low volatility these products supposedly have. However, recent studies question these characteristics, at least in relative terms. In the case of private debt, recent research by academics at Johns Hopkins University compared the performance of private debt funds with public leveraged-loan investment grade instruments and found that the differences in adjusted returns are very small and even, in some cases, negative for the alternative instruments. The main criticism is that private funds would have a significant part of their return explained by «unrealized” valuations that would not necessarily reflect market reality. Thus, these funds would show an artificial stability with latent risks in scenarios of stress.

Investing in alternative assets has a high level of complexity and risks that must be analyzed in their proper measure. It is crucial to maintain a critical stance and evaluate the relative costs and benefits these instruments could offer when deciding whether to incorporate them into a portfolio.