Oscarlyn Elder, CFA, CAIA, Senior Managing Director and Co-Chief Investment Officer at Truist Wealth, joined Keith Black, Managing Director of RIA Channel, at the CAIS Summit to discuss the process of building a portfolio of alternative investments.
Before allocating to alternative investments, Elder builds capital markets assumptions of expected returns and risks and seeks to understand each investment’s role in the portfolio. Due diligence is imperative in manager selection, as the returns in the upper half of alternative investment products are substantially higher than the returns in the lower half.
Elder recommends building a well-diversified core portfolio, whether it be private equity, private credit, or hedge funds, before allocating to complementary opportunistic exposures. It is critical for advisors to be educated so they understand how the allocation to alternative investments will influence the outcomes of their clients’ portfolios.
Elder sees a number of trends in alternative investments. Advisors are increasingly willing to learn about alternative investments driven by a desire to keep up with other advisors who are improving client outcomes with alternative investments. A practice will need to integrate alternative investments to ensure it is sustainable in the long run. Even clients who are eligible to invest in qualified purchaser drawdown funds are expressing a preference to invest in evergreen structures, such as interval funds or tender offer funds, because of the potential for intermittent liquidity. Historically, advisors allocated first to private debt and are now adding private equity to even out their allocations.
Truist Wealth published their first alternative investment guidance in 2024, including how to interpret capital markets assumptions and guidance on allocating from the perspective of clients and investment objectives. Truist Wealth offers an advisor toolkit listing the questions to ask clients before allocating to alternative investments. The firm has held advisor workshops and is available for individual consultations.
Industry wide, Elder looks forward to the inclusion of alternative investments in model portfolios and is curious to see how those recommendations will be implemented.
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