UniFi by CAIA Crossing the Threshold - 34

Alternatives as a Core Part of the Portfolio
With those objections overcome, a foundational framework to build out the allocation to
private markets should be the focus. To determine the right starting point, one should
review the investor's goals and investment experience to select strategies that increase the
probability of meeting those goals.
An initial allocation should be appropriately complementary to the overall public markets'
allocation, and ideally can help to enhance the portfolio by providing alternative avenues
of growth, income, diversification, etc. Once the desired allocation to certain factors has
been determined, a core allocation to areas such as private equity, private debt, and/or
real assets is defined. Diversification within these asset exposures is important as part of
the initial allocation; the risk of a concentrated position and the widening of outcomes that
result from that concentration is counter to creating confidence.
In addition to starting with core diversified strategies, there may be a benefit to considering
structures that offer some liquidity. While admittedly creating a potential drag on returns,
moving into private markets with a governor might feel more comfortable to investors
grappling with these decisions for the first time. Most importantly, all this work should be
done in concert with other portfolio, estate, tax, and philanthropic solutions-never in a
vacuum.
As an aside, it can be tempting to allocate all or part of an initial allocation to private
markets to a niche strategy that appears well-positioned to take advantage of a particular
market environment. However, these are long-dated assets and it's important to be
thoughtful about implementation. Selling the sizzle can create a short-term opportunity
to get an investor to say yes, but should the sizzle fizzle, the investor could be averse to
allocating outside of public markets again in the future.
Setting Expectations and the Client Experience
If successful in overcoming objections and building out a foundation, investors move
into the next phase of getting off of zero. Allocations have been made, capital is being
committed, and investors-if done right-understand the benefit of inclusion of private
markets strategies in their portfolios. Mission accomplished? Not so fast. Getting an
investor from zero to their target private markets allocation requires setting the right
expectations about the experience of investing in these strategies.
Investors are accustomed to receiving quarterly reports and commentaries, and
most can view the performance of their portfolios daily. Since there is greater
information available, there is more to discuss during regular meetings.
Conversely, there can sometimes be a tendency for advisors-and even
investors-to adopt a " set it and forget it " mentality when it comes
to private markets, given the less frequent valuations, longer
investment period, and limited (if any) liquidity. However, the
conversations around alternative investments should be
ongoing, and investors should continuously be educated
about what they own and why they own it.
34 OVERCOMING OBSTACLES
UniFi by CAIA Crossing the Threshold

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