UniFi by CAIA Crossing the Threshold - 20

Understanding Alternatives' Place In a Portfolio
When considering the suitability of an alternative investment for a client, it is essential to
carefully evaluate its characteristics and assess how it aligns with the client's investment
objectives and risk tolerance. This involves a nuanced examination of these key factors:
* Risk-Return Profiles. Alternative investments often exhibit different risk and return
characteristics compared to traditional assets like stocks and bonds. Some alternative
investments may offer the potential for higher returns, but they also can carry a higher
degree of risk. It is crucial to understand the potential risks and rewards associated
with the alternative investment and ensure that they are appropriate for the client's
risk tolerance and investment goals.
* Liquidity. Liquidity refers to the ease with which an investment can be converted into
cash without significant loss of value. Some alternative investments, such as private
equity or real estate, may have limited liquidity, meaning that investors may face
challenges in accessing their funds quickly if needed. This aspect should be carefully
considered in relation to the client's liquidity requirements and investment horizon.
* Portfolio Impact. It is essential to assess the impact of the alternative investment
on the overall portfolio's diversification and risk reduction. Alternative investments
can potentially provide diversification benefits by exhibiting low correlation with
traditional assets. This can help reduce the overall risk of the portfolio and enhance
its resilience during market downturns. However, it is important to note that some
alternative investments may also introduce new risks to the portfolio, and their impact
on the overall risk profile should be carefully evaluated.
* Access to Top Managers. Fees, expenses, and access to top managers are critical
factors when determining if an alternative investment can be successful for each
individual client. Within, alternative investments capacity is often limited, fees are
often materially higher when assets committed are lower, and access to top managers
can be very challenging as most successful managers are closed to new investors.
20 ASKING IMPORTANT QUESTIONS

UniFi by CAIA Crossing the Threshold

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