Here’s a Look at the Rise of Alternative Investments
The centerpiece of the widely adopted Modern Portfolio Theory is that having a diversity of investments can lead to greater returns without increased risk. But during the financial upheaval of 2008 and 2009, many investors learned the hard way that their assets were too highly correlated. The result: once bitten, twice shy investors have record cash sitting on the sidelines. Grofolio has created an innovative way for accredited investors to put their capital to work again.
Meanwhile, many institutional investors modified their investment approach to follow the Yale Endowment Model. Espoused by David F. Swenson, Yale’s Chief Investment Officer since 1985, portfolio theory:
- Has a strong bias towards equities
- Suggests less liquidity is good; that investors pay a premium for liquidity and there are rewards for investors who can hold assets for long periods of time
The popularity of the Yale Endowment Model has led to an explosion in alternative assets — generally private equities, including direct investment in individual companies and funds. A McKinsey and Company report titled “The Mainstreaming of Alternative Investments” showed that alternative assets, or alts, increased from 7.7 percent to 14.3 percent of total global assets under management between 2005 and 2011. The same report said institutional investors planned to increase allocations to almost all alternative classes in 2013.