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WGROWFour Emerging Market Opportunities; How to Buy a Ranch; The Eight Best Real Estate Investments Now
LIVESeven Adventures by Private Plane; The Ultimate Road Trips—and Cars; Will the World Cup Be Safe?
MAKEThe 10 Best Power Lunches; Five Builders Who Reach for the Sky; Mauricio Umansky’s Trade Secrets
CURATORMen’s Summer Fashion. Plus: From Thailand to Switzerland, Six Incredible Trips to Take This Year
T H E E V O L U T I O N O F F I N A N C I A L I N T E L L I G E N C E
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Kayne Anderson Rudnick Caleb “Spuds” Powell, CPWA®, Managing Director; Darnel Bentz, Senior Vice President; Curt Biren, CPWA®, AIF®, Senior Vice President; Thomas Connaghan, Senior Vice President; Diane Spirandelli, CFA®, Senior Vice President
Los Angeles—San Francisco, CA Leading Wealth Advisor
Alternative investments: Should they be part of my asset allocation? By Kayne Anderson Rudnick
Information expressed herein is strictly the opinion of Kayne Anderson Rudnick and is provided for discussion purposes only. This report should not be considered a recommendation or solicitation to purchase securities. Past performance is no guarantee of future results.
Alternative investments (known sim-ply as “alternatives”) are investment strategies outside of traditional stocks, bonds and cash. Some common exam-ples are private equity, venture capital, hedge funds, real estate, commodities and currencies. Less obvious examples are managed futures, private debt, deriv-atives and strategies such as hedging, short selling and arbitrage.
The popularity of alternatives has surged in the years following the 2008 financial crisis. Given the volatility in the stock market and the prospect of rising interest rates going forward, the traditional 65/35 allocation to stocks and bonds has felt less secure for many. Subsequently, investors have looked to further diversify their portfolios; and alternative investments provide a good solution, to potentially increase returns and/or decrease risk. (See chart.)
One reason for incorporating alter-natives into your investment strat-egy is to build a diversified portfolio whose more consistent return pattern will better withstand the fluctuations in market cycles. Alternatives help to achieve this goal primarily through risk reduction and the generation of strong returns that are often less correlated with traditional equity and bond mar-kets. Correlation refers to the degree to which investments fluctuate relative to one other. Positively-correlated assets move in the same direction. Alterna-tives, being less correlated to traditional markets, may exhibit returns that go up
when equity and/or bond markets go down, and vice-versa.
Alternatives also exhibit strong defensive characteristics despite the perception that they can be riskier assets. Referencing the concept of cor-relation again, the lower correlation of alternatives to traditional asset classes helps to reduce risk. Assuming equal levels of risk for an alternative versus a traditional asset class, the mere addi-tion of low correlated assets increases a portfolio’s diversification and, therefore, reduces its risk.
Further, from a statistical standpoint, alternatives often have much lower down-market capture ratios (a measure of an investment manager’s overall per-formance in down markets) than tradi-tional asset classes, meaning they often produce better returns when markets are declining.
Historically, alternatives have been
relatively difficult to access due to large investment requirements, strict prequalification rules, higher fees, lower liquidity levels, long lock-up periods for invested capital, poor transparency and difficult valuation. Also, though formerly available only to institutional investors, alternative investment strat-egies have become more accessible to the individual investor due to a prolif-eration of more liquid and tax-friendly alternative investment structures, such as REITs (real estate investment trusts) and MLPs (master limited partnerships), which can be easily accessed via ETFs (exchange-traded funds), actively-man-aged mutual funds or closed-end funds.
Because today’s complex markets require sophisticated investment tech-niques to help investors achieve their long-term goals, we believe alterna-tives can play a key role in a successful investment experience.
Stocks = S&P 500 Index, Bonds = Barclays Capital U.S. Aggregate Bond Index, Alternatives = CSFB Hedge Fund IndexData was obtained from FactSet Research Systems and is assumed to be reliable. Past performance is no guarantee of future results.
15 YEARS ENDING DECEMBER 31, 2013
StocksBonds
StocksBondsAlternatives
35%
65%StocksBonds
StocksBondsAlternatives
20%
50%30%
65% Stocks/35% Bonds Portfolio With 20% Alternatives AllocationAnnualized Return 5.45% 5.73%Annualized Volatility 9.99% 8.51%
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How to reach Kayne Anderson Rudnick
We are oriented toward quality—in our investments, in our service and in our business practices. To learn more, please contact us at 800.231.7414.
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Kayne Anderson Rudnick 1800 Avenue of the Stars, 2nd Floor, Los Angeles, CA 90067 800.231.7414 580 California Street, Suite 1750, San Francisco, CA 94104
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Assets Under Management $9 billion (as of 12/31/13)
Largest Client Net Worth $500 million+
Minimum Fee for Initial Meeting None required
Minimum Net Worth Requirement $1 million
Professional Services Provided Investment advisory and money management services
Compensation Method Asset-based fee (investment services)
Primary Custodian for Investor Assets Fidelity Investments
Financial Services Experience Powell, 20 years; Bentz, 13 years; Biren, 27 years; Connaghan, 16 years; Spirandelli, 42 years
Email [email protected] [email protected] [email protected] [email protected] [email protected]
Website www.kayne.com
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relatively difficult to access due to large investment requirements, strict prequalification rules, higher fees, lower liquidity levels, long lock-up periods for invested capital, poor transparency and difficult valuation. Also, though formerly available only to institutional investors, alternative investment strat-egies have become more accessible to the individual investor due to a prolif-eration of more liquid and tax-friendly alternative investment structures, such as REITs (real estate investment trusts) and MLPs (master limited partnerships), which can be easily accessed via ETFs (exchange-traded funds), actively-man-aged mutual funds or closed-end funds.
Because today’s complex markets require sophisticated investment tech-niques to help investors achieve their long-term goals, we believe alterna-tives can play a key role in a successful investment experience.
About Kayne Anderson Rudnick Ranked No. 5 on the Barron’s list of 2013 Top Independent Financial Advisors, Kayne Anderson Rudnick is a boutique investment advisory firm founded in 1984 to manage capital for its founders, including John Anderson (a Forbes 400 billionaire and the benefactor of UCLA’s Anderson School of Management). With offices in Los Angeles and San Francisco, the company manages assets for both high net worth individuals and institutions. Its advisors boast an average client relationship length of 11 years and a retention rate of over 95 percent, thanks to outstanding client service and personalized investment strategies designed around clients’ unique circumstances and objectives. Disciplined risk management and diversification are key components in helping clients achieve their goals. Accordingly, the company’s comprehensive platform offers proprietary investment strategies and a range of carefully selected, externally managed investment solutions. With 30 years of experience blending traditional and alternative investments, Kayne Anderson Rudnick is known for a commitment to high-quality business practices, investment strategies and wealth solutions.
“Given the volatility in the stock market and the prospect of rising interest rates going forward, the traditional 65/35 allocation to stocks and bonds has felt less secure for many.” —Kayne Anderson Rudnick
Front row: Diane Spirandelli, Caleb “Spuds” Powell; back row, left to right: Thomas Connaghan, Darnel Bentz; not pictured: Curt Biren
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the evolution of financial intelligence
R E P R I N T E D F R O M
®
Caleb “Spuds” Powell, CPWA® Managing Director
Darnel Bentz Senior Vice President
Curt Biren Senior Vice President
Thomas Connaghan Senior Vice President
Diane Spirandelli, CFA® Senior Vice President
Kayne Anderson Rudnick 1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067Tel. 800.231.7414
909 Montgomery Street, Suite 500San Francisco, CA 94133
[email protected]@kayne.com
[email protected]@kayne.com
Kayne Anderson Rudnick is featured in Worth® 2014 Leading Wealth Advisors™, a special section in every edition of Worth® magazine. All persons and firms appearing in this section have completed questionnaires, have been vetted by an advisory group following submission by Worth®, and thereafter paid the standard fees to Worth® to be featured in this section. The information contained herein is for informational purposes, and although the list of advisors presented in this section is drawn from sources believed to be reliable and independently reviewed, the accuracy or completeness of this information is not guaranteed. No person or firm listed in this section should be construed as an endorsement by Worth®, and Worth® will not be responsible for the performance, acts or omissions of any such advisor. It should not be assumed that the past performance of any advisors featured in this special section will equal or be an indicator of future performance. Worth®, a Sandow Media publication, is a financial publisher and does not recommend or endorse investment, legal or tax advisors, investment strategies or particular investments. Those seeking specific investment advice should consider a qualified and licensed investment professional. Worth® is a registered trademark of Sandow Media LLC. See “About Us” for additional program details at http://www.worth.com/index.php/about-worth.
