Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
‘Whole portfolio liquidity’ takes on the alternatives challenge
“Now is a really good time to be having a conversation about alternative assets” explained Felicity Walsh.
The newly appointed managing director of Franklin Templeton in Australia and New Zealand was speaking at The Inside Network’s Alternative Symposium in Sydney recently alongside leading financial adviser Charlie Viola about the growing role and evolution of the asset class.
After a career spent building customised alternative asset solutions for institutional asset owners, Walsh has a keen eye on the increased focus on alternative assets. The timing couldn’t be better given that listed equities have done a lot of the heavy lifting for portfolios for the last decade, she explained, but we are now entering a regime that is “quite different”.
In an environment where listed equity and bond markets have struggled to deliver positive returns, alternatives offer an option to “get away from the key risk driver of portfolios, that being equity market beta”, she explained. This was a view shared by Viola, who has embraced alternatives as a ‘core’ rather than ancillary part of client portfolios for their “genuine diversity” and ability to generate returns in different ways.
Viola warned against “overthinking” alternatives, noting they did not have to be a “Congolese gold mine” but in many cases were just normal assets like equity or loans to a business, wrapped up in a different, private market structure. At their core, clients and their advisers simply want assets that “put cash into the bank account and not draw down significantly”, which for better or worse are increasingly the traits of private market assets.
Viola remains “relaxed” about liquidity issues, noting that even a 60-year-old client has a 35 year investment horizon, but stressed that knowing your client and understanding their liquidity requirements is central to having enough confidence to make material allocations to alternatives.
Echoing this sentiment from an institutional perspective, Walsh said that having a “good handle” on liquidity requirements should be the first step in any portfolio construction process.
“Whole portfolio liquidity”, she continued, when reported and recorded appropriately, offers insight into how much cash will be available and when, thus providing a valuable benefit that can assist in communication with clients and getting over the education issue. A recent evolution in the industry, much of which can be credited to the work of the institutions and pension fund, has been the blending of something less liquid with more liquid investments allowing quarterly liquidity and reducing the ‘vintage risk’ of private market strategies.
Viola says there have never been more options with the asset class “super accessible”, whilst also being a potential marketing tool for an increasingly knowledgeable client base.
Walsh highlighted the priority of allowing more institutional-grade funds to become available for HNW and wholesale investors in the coming years, flagged private credit as being among the most popular asset classes at the present time.
