As Volatility Returns, Many Advisors Consider Alternative Investments: New Whitepaper by BNY Mellon’s Pershing

July 16, 2018

“The Alternative Advantage” outlines key questions advisors should ask when considering non-traded REITs, private equity and hedge fund investments for their clients

Jersey City, N.J. — Increased volatility so far this year, along with questions as to how much longer this bull market can continue, has led to increased interest in alternative investments. Advisors exploring alternative investments need to ensure they are viewing these investment vehicles in proper context and setting the right expectations with investors, according to a new whitepaper released today by BNY Mellon’s Pershing.

The paper, “The Alternative Advantage: Is Now the Time to Take a New Look at Alternative Investments?,” outlines key questions advisors should ask when deciding whether or not non-traded Real Estate Investment Trusts (REITs), private equity and hedge fund investments are right for their clients.

Key recommendations for advisors include:

Revisit REITs.

While non-traded REITs have experienced slow growth in the last few years due to lack of recent product development and previous uncertainty around the Department of Labor conflict of interest rule, sustained economic growth moving into 2019 has fueled an argument for non-traded REITs as a diversifying and income-adding portfolio element.

The paper suggests that advisors looking into REITs should consider those that have buffers and cushions against rising rates. Additionally, REITs that feature tenants with mature business models and staying power could translate to more stability as rental spaces may stay occupied for longer periods of time.

Take advantage of private equity’s newfound transparency and access.

Advisors looking to allocate investor funds into private equity face fewer operational barriers to entry than ever before. However, the paper states advisors looking to help their clients diversify into private equity should know specifically what they are diversifying against.

“Before advisors secure access to a private equity fund, it’s critical for them to take time to perform thoughtful due diligence,” says Justin Fay, director of financial solutions at BNY Mellon’s Pershing. “These learning opportunities not only allow advisors to better understand exactly what’s on the diversified menu of funds but also decide whether it’s the right fit for their client.”

Do more to set investors’ expectations of hedge funds.

According to Preqin’s Investment Outlook on alternative assets, three in 10 investors felt that hedge funds did not meet their expectations.

Rather than bundling vehicles into an “alt bucket,” the paper recommends that advisors create a clear strategy—they may find that hedge funds can fill a needed niche in a portfolio against current market outlooks of low yield and high volatility.

“Above all else, it’s critically important for advisors to know what’s currently available, understand what’s under the hood of what they are recommending, and determine the right risk/reward combination for each client based on such factors as objective, risk tolerance, and suitability,” says Fay.

The report builds on previous BNY Mellon research, as well as research from Bloomberg Financial and Preqin. For more information, and to download a copy of “The Alternative Advantage: Is Now the Time to Take a New Look at Alternative Investments?,” visit https://www.pershing.com/perspectives/the-alternative-advantage.

About BNY Mellon's Pershing

BNY Mellon’s Pershing and its affiliates provide advisors, broker-dealers, family offices, hedge fund and ’40 Act fund managers, registered investment advisor firms and wealth managers with a broad suite of global financial business solutions. Many of the world’s most sophisticated and successful financial services firms rely on Pershing for clearing and custody, investment and retirement solutions, technology, enterprise data management, trading services, prime brokerage and business consulting. Pershing helps clients improve profitability and drive growth, create capacity and efficiency, attract and retain talent, and manage risk and regulation. With a network of 23 offices worldwide, Pershing provides business-to-business solutions to clients representing approximately 7 million investor accounts globally. Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company. Additional information is available on pershing.com, or follow us on Twitter @Pershing.

About BNY Mellon

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries. As of June 30, 2018, BNY Mellon had $33.6 trillion in assets under custody and/or administration, and $1.8 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.