Allocating to Alternative Investments With Dick Pfister

Strategic Investor Radio Charley WrightDick Pfister, founder and CEO of AlphaCore Capital, is Charley Wright’s guest on this episode of Strategic Investor Radio. Mr. Pfister has nearly a quarter-century of experience in alternative investments, starting as a floor trader in Chicago and later becoming a partner at Altegris, and he says he was inspired to start AlphaCore when he had a “personal liquidity event” upon selling his prior company. Advisors were essentially serving up “60/40” solutions, and in Pfister’s view, that approach is outdated and alternatives are essential.

Equity valuations are high and interest rates are low. Going forward, even index-fund advocate Jack Bogle anticipates ultra-low returns. But Mr. Pfister, who managed money through several stock-market crises over the past couple of decades, knows that equity markets can and do crash; and meanwhile, low interest rates provide little cushion for bond portfolios, which are highly susceptible to capital losses if rates rise.

Dick Pfister founder ceo alphacore capital
Dick Pfister, Founder and CEO, AlphaCore Capital

What investors need is exposure to assets and strategies that have low correlation to the stock and bond markets. Alternatives provide such exposures, and but just one alternative fund is unlikely to do the trick, in Pfister’s view. That’s because strategies vary widely within the alternatives category, and Pfister breaks them down into two broad categories:

  • Convergent strategies, which include event driven, relative value, and long/short equity; and
  • Divergent strategies, which include managed futures and global macro.

Pfister says convergent strategies do well when valuations really matter, while divergent strategies outperform when valuations are “out the window” and markets are being dominated by macro events. A diversified blend of both convergent and divergent strategies, implemented within a broader portfolio, should work well in different market environments.

AlphaCore, Pfister’s firm, specializes in manager selection. Pfister says there are more than 400 alternatives managers active today, and while that’s an overall good thing for investors, it does make it difficult for them to find the best of the bunch. This is AlphaCore’s job.

Pfister concludes the interview by saying this is the time to act. It’s not time for a “wait and see approach.”

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