Alternative Assets & Super

What are alternatives?

Alternatives can mean different things to different funds.

For Rest, ‘Alternatives’ captures a broad range of strategies and investments that are designed to have no or low correlation with Rest’s other asset classes in most market conditions and cycles.

This means that the performance for alternative investments is typically not linked to the performance of other asset classes, so they have the potential to perform well independent of the performance of other more traditional investments like shares or bonds.

Alternative investments can come in many different forms and can include investments in:

private market assets, assets that aren’t traded on public markets (unlike listed shares or bonds), that do not fit into Rest’s other asset classes; or
traditional public market assets (shares, bonds) utilising a non-traditional strategy designed to have a low correlation with the broader market.

Investment risks

All investments carry risk and alternatives are no different. Given the diverse nature of alternative investments, the risks of investing in alternatives can be equally as diverse. Some common risks include:

Alternative assets tend to be relatively less liquid compared to more traditional asset classes. In other words, it can take longer to sell them for cash.
Some alternative assets are more complex and less transparent, compared with more traditional asset classes and consequently where this is the case they typically have higher fees.

Alternatives at Rest

Many of Rest’s investment options include some exposure to alternative investments.

At Rest, we group our alternative investments into three sub-categories:

1. Agriculture

Agriculture is considered an alternative investment as it possesses several of the main features we highlighted earlier in alternative investments. These features include:

Performance is not linked to the returns of traditional asset classes like shares and bonds

Agriculture is generally not a publicly traded investment i.e. people are not trading agriculture like you would shares on the stock exchange

Agriculture is less liquid than traditional asset classes – given the high barrier to entry for agriculture investments, it is more difficult to both buy and sell agriculture investments

2. Defensive Alternatives

Generally, this refers to private debt investments, being fixed income investments that are not publicly traded. Loans made directly to companies that require capital for activities like refinancing, acquisitions, growth or day-to-day funds to keep operating are one such example.

These loans typically earn a higher return than equivalent public debt (e.g. bonds), because they have a higher risk profile (i.e. because they are more unique/bespoke features and/or they are harder to sell once the loan has been made).

3. Growth Alternatives

This sub-asset class is setup to invest in various ‘absolute return’ strategies. An absolute return strategy is a strategy that has the objective of delivering a positive return regardless of the broader market’s direction (up or down). As with any investment strategy, it is important to note that there is no guarantee that the strategy will achieve its objective.

An alternative in difficult times

Financial year 2022 provides a good example of the diversification benefit alternative investments can provide. In a year where most assets produced negative returns, the Core Strategy’s allocation to agriculture was one of its best performing asset classes producing strong positive returns.

Fundamentally, this is why we hold alternative investments. Next time global markets turn sour, you might be glad you have something in your portfolio which is a bit different.