In this video, DailyAlts publisher and editor Brian Haskin sits down with K.C. Nelson, Portfolio Manager and Managing Director at Driehaus Investments, to discuss how advisors can use liquid alternatives in their clients’ portfolios.
In Mr. Nelson’s view, liquid alternatives should be a “permanent part” of investors’ portfolios, since it’s difficult to time the market. The weighting of alts within a portfolio may depend on the client and their ultimate return/risk objectives, but Nelson says “10, 20, 30 percent” allocations typically make sense, with alts exposure diversified across a number of styles and managers, and implemented within a portfolio’s equity and fixed-income sleeves.
To give an idea of the diversity within the liquid alts category, Mr. Nelson cites two of his firm’s products. First, a long/short credit fund, which he says is Driehaus’s most “conservative” alternative fund; and second, an event-driven fund, which he says is Driehaus’s “most aggressive.” The long/short credit fund targets annual returns of LIBOR +3%, with less volatility than the Barclays Aggregate Index; while the event-driven fund shoots for 2/3 of the equity market’s returns with less than 2/3 of its volatility.
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