60/40 is broken: alternative assets and private markets should be part of your portfolio
Story published 6/6/2022
(Kitco News) With bond seeing their biggest selloff in decades and equities markets roiled by rising volatility, the traditional 60/40 portfolio allocation is broken and according to one fin-tech executive, now is the time for investors to embrace alternative asset classes.
In a recent interview with Kitco News, Milind Mehere, Founder and Board Member of Yieldstreet, said that a significant problem with equity markets is that there is very little long-term value for investors to build their wealth.
Mehere,an award-winning entrepreneur, said a new trend emerging, particularly in the tech sector, is that companies are launching initial public offerings later in their growth cycle. Instead of going public earlier, companies are raising money through private equity and venture capital funds.
Mehere noted it’s no coincidence that major investment firms like Blackrock and institutional money have, over the years, increased their allocation to private equity and real estate. He added that these are the markets that have the best value.
“Generally, private equity and private markets are driving alpha to their portfolio over the long term because traditional equities have become so commoditized,” he said. “It’s because private markets have generated higher returns – while public market allocations have become more passive.
The primary issue for retail investors, these private equity markets are only accessible to high-net-worth investors and investment funds. However, Mehere said that Yieldstreet is trying to level the playing field by providing retail investors access to private markets.
The company was founded in 2014. Since then, the platform has raised more than $3 billion in private equity, returning more than $1.5 billion with net annualized returns of around 9%.
Mehere said that the platform provides retail investors access to various private markets and credit. A majority of the assets on the platform are in real estate.
With the traditional 60/40 model broken, the question remains, what does a new portfolio look like. Mehere said investors should look at holding around 20% in alternative assets.
“What we are trying to highlight here is that private market allocations can improve a portfolio’s efficiency no matter the weather, and regardless of what the rest of the portfolio allocation looks like,” he said.
Not only can private markets provide investors alpha within their portfolio, but Mehere said that it can also provide important defensive positioning. He added that he also likes holding some gold in his personal portfolio.
Mehere added along with promoting the benefits of investing in private markets, Yieldstreet is also trying to dispel some myths. One reason generalist investors have shied away from alternative assets is because of misconceptions of liquidity. While assets like art and real estate can be illiquid, Mehere said that everything needs to be looked at through the lens of your time horizon.
“Liquidity only becomes an issue when you need it. We have seen assets that appear to be liquid, complete freeze as everyone tries to get out,” he said. “If you have a 10 or 20 or 30-year time horizon, is real estate that illiquid. Liquidity in an investment portfolio is important, but you have to ask: does your entire portfolio need to be liquid?”
For Kitco News
What's Yieldstreet?
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.
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