A prominent high-net-worth financial adviser is aiming to have 7-10% of his clients' portfolios in alternatives as the markets mature but he's eschewing hedge funds and picking private assets instead.
Charlie Viola is a partner at Pitcher Partners where he advises on more than half of the firm's $2.2 billion in funds under advice.
His firm backed the L1 long-short fund $1.3 billion IPO last year. He invests in absolute return funds but he won't go near pure hedge funds.
"Maybe it is just me not understanding hedge funds that well," Viola says. "Blind mandates scare me; I like to be able to show clients what we are investing in."
Alternatives are investments that aim to deliver returns that have little or no correlation to traditional assets like listed equities, bonds and property - a proposition that is increasingly attractive as the market-cycle matures and volatility worries investors.
To get his alternatives exposure, Viola works with a few pure private equity managers.
But what he really prefers is syndicated private assets, where a tight group of 30 to 50 investors go in together to provide finance for an office building, construction project or retail assets.
"Pure private equity can be very hard to access, with some funds having minimums of $5 million or above. With syndicated deals, minimums hover between $100,000 and $500,000 and can come in at $250,000," he says
The returns can be anywhere between 10% and24% IRR for syndicated deals.
But the clients don't get to see the valuations every day, just like with stocks, and the capital and returns are paid out at the end - something that can put off some investors.
Viola's average clients are wealthy mums and dads with $8-$16 million. He currently aims for 7-10% allocation to alternatives.
"It can go up to 25% for really sophisticated investors who may have worked in the industry and understand alternatives very well," he says.
The firm's foray into the asset class is fairly recent.
He says his clients had almost no exposure to alternatives 10 years ago. Things started to move about five years ago and now he advises his clients on considering alternatives to smooth out returns, remove the market volatility and diversify their investments.
"A part of it was if your average high-net-worth client came in with $5 million a decade ago, they now have maybe $15 million to invest and you just have to diversify," he says.
Viola spoke to Financial Standard as a part of our latest feature on Alternatives. Read more (paywall) to find out how HNWs and large superannuation funds are accessing the asset class.