Alternative Allocations: A CIO’s perspective on allocating to alts

The podcast episode with Scott Welch from Certuity provides valuable insights into alternative investments and their role in client portfolios. A key discussion point was the evolution from drawdown to evergreen structures, particularly in private credit, which allows immediate income generation without the J curve, enhancing appeal for investors. Scott emphasized the importance of the four P's of due diligence—people, philosophy, process, and performance—when evaluating funds and managers, highlighting the need to focus on top quartile managers who consistently outperform.

Scott identified private credit and real estate as attractive investment opportunities, noting that real estate valuations have become more favorable. He also expressed high conviction in secondaries due to current market conditions that have created significant discounts. The discussion underscored the importance of accessing top general partners who see the most deal flow, thereby increasing the likelihood of achieving superior returns.

In terms of allocation, Scott suggested that clients often have a 10% allocation to hedge fund strategies and a 10%-15% allocation to private markets, which can be adjusted based on individual client goals. This approach reflects a strategic balance between risk and opportunity in alternative investments. The conversation offered a comprehensive view of how to effectively incorporate alternatives into investment strategies, providing a framework for financial advisors and wealth managers to consider when advising clients.