Alternative investments—finding the best “fit”
Fidelity Institutional Wealth Adviser (FIWA) has developed a research framework to evaluate vehicle structures that may help advisors in their alternative portfolio construction decision-making.
- The growth of alternative investment vehicles, particularly registered evergreen funds, is opening the door to wider adoption across more investor types.
- Regardless of the product type, alternative investments entail many complexities, requiring an understanding of not only the strategies, but also the vehicles that hold them. There is no “one size fits all.” The best vehicle fit for each client will depend on numerous variables.
- Fidelity Institutional Wealth Adviser (FIWA) has developed a framework to evaluate the “fit” of a given vehicle to the underlying investment strategy. The framework focuses on two areas: (1) liquidity alignment and (2) vehicle constraints. It can be used with any asset class or vehicle type, but in this article, we will focus on evergreen private markets, as well as 40 Act liquid alternatives and hedge fund vehicles, where it may be most applicable.
- We believe understanding vehicle “fit” is a critical piece in the alternative allocation process because it can help identify potential risks, thereby enabling advisors to understand the trade-offs between vehicles and make better-informed investment decisions—potentially enhancing client portfolio outcomes.
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Alternative investment strategies may not be suitable for all investors and are not intended to be a complete investment program. Alternatives may be relatively illiquid; it may be difficult to determine the current market value of the asset; and there may be limited historical risk and return data. Costs of purchase and sale may be relatively high. A high degree of investment analysis may be required before investing.
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