Alternative Asset Management Insights

It’s Not the Same, Never Has Been, Never Will Be Consumer credit isn’t all the same. Non-bank credit cards, student loans, and sub-prime auto loans carry meaningfully higher default rates, as shown in the graph below taken directly from Federal Reserve database and Equifax. In contrast, residential mortgages, and home-equity loans at 65% LTV tends to be far safer. Yes, mortgage delinquencies spiked during the 2008–2009 housing crisis, but those distortions have long since been corrected, and underwriting standards are far more disciplined today as you see by the yellow and purple lines in this graph. Investors are wise to distinguish among ABL managers, because not all asset-based strategies are created equal. Performance varies widely across ABL sub-strategies, that’s where art meets science. Put simply, an ABL fund heavily exposed to high-default-rate consumer loans carries materially greater risk compared to an ABL fund that lends at conservative attachment points secured by hard assets, which is further supported by creditworthy borrowers. In uncertain markets, lending against hard assets is lending with a safety net. A paper IOU is just a promise; real assets (i.e., transportation assets, property, plant, and equipment) provide tangible value as a loan with a perfected interest in the underlying collateral of the hard assets lowers downside risk and protects investor capital. As an investment manager, it is simple - I sleep better knowing my capital is secured by the asset with a significant margin of safety. ABL strategies provide a strong complement within a diversified private credit portfolio and deserve consideration as a core allocation alongside Direct Lending. While both strategies have historically generated comparable IRRs, they should show relatively low correlation coefficients (less than 0.5). Importantly, when the business cycle turns negative, ABL portfolios tend to be generally better insulated due to their collateral coverage and inherent margin of safety. One important caveat, however: if an ABL fund is heavily invested in unsecured consumer loans, its performance may behave more like direct lending to leveraged corporate borrowers as both may be susceptible to recessionary risk #ABL #Sourcing #Underwriting #Structuring #LegalDocumentation #AssetManagement #Performance #Marathon #EdCong

The Silent Power of Alternatives   When markets wobble, most investors get louder. They add noise. They chase performance. They react.   Alternatives don’t need to shout. They just show up.   And this year, they’ve been doing exactly what they’re supposed to.     In our base case for 2025—moderate growth and sticky inflation— Private credit continues to deliver yield. Macro hedge funds are handling dispersion like professionals. Private equity secondaries are quietly building liquidity.   In our bull case—rate cuts and reflation— Growth-stage PE, infra, and structured credit all accelerate.   In our bear case—recession or volatility spike— Distressed credit and discretionary macro step in as shock absorbers.   That’s the real power of alternatives: They aren’t just for upside. They’re for staying upright.     So we’re not surprised that more portfolios are making room. Because traditional hedges? They’ve gotten less reliable. Correlation breakdowns. Deficit-driven bond pressure. Volatility clusters.   Meanwhile, private markets continue to show:   • Lower sensitivity to equity shocks • Stability through illiquidity • Yield that isn’t mood-driven     We’re not adding alternatives to be trendy. We’re adding them because they still work. Especially when other things don’t.     ✔️ Macro hedge funds for dispersion ✔️ Private credit for predictable cash flows ✔️ Secondaries for flexible capital ✔️ Infrastructure for inflation-linked stability   This isn’t a hedge. It’s a core position.     #CIOPerspective #PrivateMarkets #HedgeFunds #PrivateCredit #PortfolioResilience #Alternatives Tathagata Bhar Anuragh Balajee Dhrumil Talati   For more see our Nomura CIO Corner: https://lnkd.in/e4TCax_g  

Private credit and other forms of alternative lending are no longer niche — they’re becoming core components of institutional portfolios. To help investors, allocators, and advisors deepen their understanding of this fast-growing asset class, the CFA Institute Research Foundation published An Introduction to Alternative Credit (attached). This 106-page book offers a comprehensive, practitioner-driven overview of alternative credit — including direct lending, CLOs, consumer and trade finance, real estate loans, infrastructure debt, and venture debt (the chapter I contributed). As capital continues shifting away from banks toward private credit markets, understanding the structures, risk dynamics, and long-term opportunities in this space is essential. A few highlights from the research: 🔹 Low correlation to public markets makes alternative credit an effective portfolio stabilizer during equity or rate-driven drawdowns. 🔹 Illiquidity and complexity premiums can offer persistent excess returns when combined with robust due diligence and governance. 🔹 These markets reward disciplined underwriting, alignment, and long-term thinking. 🔹 Venture debt and other niche strategies play an increasingly strategic role as allocators seek diversification, downside protection and asymmetric upside potential. For professional investors seeking a foundation in the mechanics and mindset behind alternative credit, this is one of the most useful educational resources available. 📘 Download: An Introduction to Alternative Credit (PDF attached) #CFAInstitute #ResearchFoundation #AlternativeCredit #PrivateCredit #VentureDebt #DirectLending #InstitutionalInvesting #FixedIncome #PortfolioManagement #FinanceEducation #CFA CFA Institute, CFA Society Los Angeles, CFA Society New York, CFA Society Boston, CFA Society San Francisco, CFA Society Toronto, CFA Society Hong Kong, CAIA Association, Institutional Limited Partners Association (ILPA), CFP Board, AIMA - The Alternative Investment Management Association, PitchBook, Preqin, Institutional Investor, Pensions & Investments, Milken Institute

Best Practices in Late-Cycle Investing: Rebalancing from Public Equities, to...? 🤔 So you’ve followed our advice. You’ve understood that maybe taking money off the table, especially from some of your high-performing US tech equities, might be acceptable despite the tax hit. You’ve also understood that there might be assets beyond public equities. But like many of the investors you’ve spoken to, you might wonder - what else is there? First, cash. Asides from a default of the bank where you hold cash in excess of amounts protected by your local deposit insurance, cash in your base currency has essentially no price risk at all - which actually makes for a great combination with volatile public equities. (Of course it’s worth noting that cash is not risk-free - in particular, it is exposed to inflation risk.) Secondly, fixed income investments. Fixed income includes any investment that has a contractually defined return profile, such as a bond or a loan. FI comes in many shapes and forms, ranging from low risk (like US treasury bonds) to more risky (think high-yield bonds issues as part of private equity buyout transactions). They also vary in geography (i.e. US, Europe, EM) and issuer (governments, companies, SPVs). Many younger investors grew up in the days of low interest rates and thus might’ve had little exposure to bonds. However, as rates have risen substantially again, bonds can be attractive additions to a diversified portfolio: Government bonds and/or IG corporate bonds might add stability while offering higher yields than cash. Structured credit or emerging markets bonds offer higher yield through ‘differentiated’ risk (i.e. structural risks of structured credit or political risk for EM bonds). Lastly, investments like high-yield bonds offer returns that can be equity-like, but of course are more risky. Third and last, commodities. There's not just gold - options range from other precious metals such as silver to industrial commodities such as gold or even livestock. While each of these commodities differs substantially in its return, they all share one common characteristic, which is that they tend to do well in times of inflation. Professionally, I grew up sceptical of commodities (my alma mater Goldman Sachs didn’t like investing directly into commodities given the negative cashflow) - but changed my mind after 2022, when ‘safe’ bonds did even worse than equities while inflation-sensitive investments like gold or other commodities ended with positive returns. So going back to our original question - there are many asset classes that can be a valid alternative and/or addition to a public equity portfolio. But as with every investment-related matter, they should be picked prudently, and in light of your other investments. It’s something we’ve done many times with our clients - so if you’re looking to diversify beyond equities, don’t hesitate - and reach out to me and my colleagues at Cape May Wealth Advisors. 😇

𝗧𝗵𝗮𝘁 𝘀𝗶𝗻𝗸𝗶𝗻𝗴 𝗳𝗲𝗲𝗹𝗶𝗻𝗴 𝗼𝗳 𝗰𝗿𝗲𝗱𝗶𝘁 𝗽𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝘂𝗻𝗱𝗲𝗿𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲. In a new paper “𝑇ℎ𝑒 𝑐𝑎𝑠𝑒 𝑓𝑜𝑟 𝑡𝑟𝑎𝑛𝑠𝑖𝑡𝑖𝑜𝑛 𝑠𝑡𝑟𝑎𝑡𝑒𝑔𝑖𝑒𝑠 𝑖𝑛 𝑐𝑟𝑒𝑑𝑖𝑡”, Kamesh Korangi, PhD and I evaluate both a passive and an active transition/relative lower carbon credit strategy in a robust, truly out-of-sample setting. The passive strategy, based on S&P Global’s carbon efficient US IG bond index, exhibits an excess return of +16bps per annum versus its higher carbon benchmark, with a Sharpe of 1.0 (2018-to date). The active strategy, Anthropocene Fixed Income Institute’s #Co₂liseum model portfolio based on the #QTA methodology, exhibits a hypothetical(*) excess return of +168bps p.a. versus its higher carbon benchmark, and a Sharpe ratio of 1.1 (Jan-2024-to date). 𝐎𝐮𝐫 𝐨𝐭𝐡𝐞𝐫 𝐝𝐢𝐚𝐠𝐧𝐨𝐬𝐭𝐢𝐜𝐬, 𝐬𝐮𝐜𝐡 𝐚𝐬 𝐝𝐫𝐚𝐰-𝐝𝐨𝐰𝐧 𝐚𝐧𝐚𝐥𝐲𝐬𝐞𝐬 𝐞𝐭𝐜, 𝐬𝐮𝐩𝐩𝐨𝐫𝐭 𝐭𝐡𝐞 𝐜𝐨𝐧𝐜𝐥𝐮𝐬𝐢𝐨𝐧 𝐭𝐡𝐚𝐭 𝐥𝐨𝐰𝐞𝐫 𝐜𝐚𝐫𝐛𝐨𝐧, 𝐭𝐫𝐚𝐧𝐬𝐢𝐭𝐢𝐨𝐧 𝐬𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐞𝐬 𝐰𝐨𝐫𝐤 𝐰𝐞𝐥𝐥 𝐢𝐧 𝐜𝐫𝐞𝐝𝐢𝐭. 𝐂𝐨𝐧𝐯𝐞𝐫𝐬𝐞𝐥𝐲, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐧𝐠 𝐭𝐨 𝐫𝐞𝐥𝐚𝐭𝐢𝐯𝐞𝐥𝐲 𝐡𝐢𝐠𝐡𝐞𝐫 𝐜𝐚𝐫𝐛𝐨𝐧 𝐢𝐬𝐬𝐮𝐞𝐫𝐬 (𝐚𝐥𝐬𝐨 𝐨𝐧 𝐚 𝐬𝐢𝐦𝐢𝐥𝐚𝐫 𝐬𝐞𝐜𝐭𝐨𝐫 𝐰𝐞𝐢𝐠𝐡𝐭𝐢𝐧𝐠 𝐛𝐚𝐬𝐢𝐬) 𝐬𝐞𝐞𝐦𝐬 𝐭𝐨 𝐛𝐞 𝐚 𝐰𝐚𝐲 𝐭𝐨 𝐜𝐨𝐧𝐬𝐢𝐬𝐭𝐞𝐧𝐭𝐥𝐲 𝐤𝐞𝐞𝐩 𝐨𝐧𝐞’𝐬 𝐜𝐫𝐞𝐝𝐢𝐭 𝐩𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐮𝐧𝐝𝐞𝐫 𝐰𝐚𝐭𝐞𝐫. By the way, nothing but ego was hurt during this little boating incident. Sometimes “batten down the hatches” should be taken literally and not metaphorically. #fixedincome #bonds (*) Each Co₂liseum portfolio is hypothetical, and each portfolio and the QTA methodology are for informational and educational purposes only and are not an investment recommendation. See our Co₂liseum website https://lnkd.in/daDnGaWN, including our Disclaimer Notice https://lnkd.in/dar9ZWbF.

Private Credit is top of mind. Our latest analysis digs in. Full analysis on private credit (direct lending and asset backed finance) linked in the comments! THREE QUICK HITS: ➡️ We are not yet seeing signs of a systemic crisis in credit markets.  Defaults across high yield, leveraged loans, and private credit are tracking at or below historical averages, with stress concentrated among smaller borrowers or select industries (autos, retail, and pockets of software may face pressure over the medium term — more of a 3–5 year story than an immediate one). These are hallmarks of maturation of a credit cycle, not signals of a macro default cycle. Recent volatility has conflated market sentiment with systemic risk — and in our view, those fears are overstated. ➡️ After three years of outperformance, we are seeing normalization in private credit markets. Flows are cooling after record growth, performance dispersion is widening, yields are compressing, and the era of "rising tide lifts all boats" is coming to an end. Senior secured direct lending can still serve as a critical component in a core private market portfolio, but selectivity is key. Focus on portfolios with diversified sector exposure, seniority in the capital structure, and larger borrowers. ➡️ This is exactly why credit complements — a key theme we came into 2026 with — are critical to building durable portfolios that can withstand market cycles. Think asset-backed finance (ABF) and opportunistic/distressed credit. Indeed, ABF is emerging as a compelling complement to direct lending, offering diversification of both collateral (real-world assets versus corporate) and cash flows (self-amortizing structures versus bullet maturities). The question we are confronted with today is simple: how do you build a durable credit portfolio in a normalized rate environment amid technological disruption? #PrivateCredit #AssetBackedFinance #AlternativeInvestments #PrivateMarkets #JPMorgan

If this market has you looking for diversifiers, here is a framework for evaluating whether a liquid alternative will add value to your portfolio. What you’re looking for is a position that improves risk-adjusted returns. That's the definition of whether or not it adds value. The tradeoff you're navigating is a positions return, relative to how it changes the risk of your portfolio. The second half of this equation is comprised of two factors: a position’s risk (std. deviation) and its correlation to your portfolio. Beta = Relative Risk * Relative Correlation Since Beta is calculated from a position’s relative risk and correlation, we can use it as a shorthand for the second half of the equation. In real life, you will want to calculate the beta of a position relative to your actual portfolio. For purposes of this example, we will assume we are evaluating a diversifier versus the S&P500, with annualized return and standard deviation assumptions of 10% and 16% respectively. And a risk free rate of 2%. Some liquid alternatives have a low beta to equities but they do not generate enough return to improve risk-adjusted returns. Others may have higher betas but DO generate enough return to improve risk-adjusted returns. 𝐀𝐧𝐝 𝐲𝐞𝐬, 𝐚 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧 𝐜𝐚𝐧 𝐡𝐚𝐯𝐞 𝐚 𝐧𝐞𝐠𝐚𝐭𝐢𝐯𝐞 𝐞𝐱𝐩𝐞𝐜𝐭𝐞𝐝 𝐫𝐞𝐭𝐮𝐫𝐧 𝐚𝐧𝐝 𝐬𝐭𝐢𝐥𝐥 𝐢𝐦𝐩𝐫𝐨𝐯𝐞 𝐫𝐢𝐬𝐤-𝐚𝐝𝐣𝐮𝐬𝐭𝐞𝐝 𝐫𝐞𝐭𝐮𝐫𝐧𝐬. If you follow my posts, you know that my favorite categories of liquid alternatives are systematic global macro, managed futures, and long/short equities. Along the return-to-beta spectrum, these strategies typically fall as follows: -         Systematic global macro: low but positive beta with positive expected returns -         Managed Futures: low to slightly negative beta with positive expected returns -         Long/short equity: negative beta with low to negative expected returns Obviously, depending on how these strategies are set up they can differ along this spectrum. If you know a position’s beta, you can use the chart below to see if it generates enough return to warrant an addition to you portfolio. **P.S. you can translate improvements in risk-adjusted returns into higher absolute returns with a small amount of leverage. This gets you to a higher absolute return at each level of risk.  

The 60/40 portfolio just died. In 2022, stocks and bonds crashed together for the first time in decades. Here's how the smartest money responded: For decades, the model worked on 1 assumption: when stocks fell, bonds would rise. 2008: Stocks crashed 35.6%. Bonds rose 6.9%. Early 2020: Stocks fell 19.6%. Bonds rose 3.2%. Then came 2022. Stocks fell 18.0%. Bonds fell 13.0% right alongside them. Only cash broke even at 0.0%. This wasn't just a bad year. It was a structural shift in how assets correlate. Traditional diversification failed when it mattered most. So capital started moving somewhere new: private markets. Total AUM surged from $14 trillion in 2020 to $22 trillion in 2024. That's $8 trillion in just 4 years. But the real story is beneath the surface. Traditional fund structures dropped from 73% to 67% of total AUM. Alternative structures grew from 27% to 33%. Investors want control, flexibility, and uncorrelated returns. Who's leading this shift? Sovereign wealth funds with multigenerational time horizons. Their allocations reveal where conviction lies: • Real estate: 8.0% • Private equity: 7.4% • Infrastructure: 7.1% • Hedge funds: just 2.5% They're prioritizing tangible assets with intrinsic value. Investments that hedge inflation, generate income, and offer resilience to macro shocks. The data validates their strategy. Portfolios with 30% alternatives deliver 8.4-9.0% returns with minimal volatility increase. Traditional 60/40? Just 7.3% returns. The sweet spot: 30-40% alternatives with balanced equity-bond splits. More return per unit of risk. One segment is exploding faster than any other: private credit. The market ballooned from $0.5T in 2013 to $2.1T in 2023. 15% annual growth over a decade. Why? Banks pulled back. Investors need yield. Corporates need flexible lending. Here's what this reveals: sophisticated capital has repositioned into private markets, real assets, and direct credit. Alternatives aren't a niche play anymore. They're the foundation of modern wealth strategy. The new playbook isn't about beating the market. It's about building portfolios that endure through every regime. But most investors face 1 problem: accessing quality private market deals has traditionally required institutional scale they don't have. I break down these exact principles in my newsletter. Real strategies, real deal flow, zero fluff. Join thousands learning how to buy then build: wealthstack1.com

"𝐓𝐡𝐚𝐭 𝐭𝐫𝐚𝐝𝐞-𝐨𝐟𝐟, 𝐠𝐢𝐯𝐢𝐧𝐠 𝐮𝐩 𝐬𝐨𝐦𝐞 𝐮𝐩𝐬𝐢𝐝𝐞 𝐢𝐧 𝐞𝐱𝐜𝐡𝐚𝐧𝐠𝐞 𝐟𝐨𝐫 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐭 𝐛𝐞𝐡𝐚𝐯𝐢𝐨𝐫, 𝐢𝐬 𝐰𝐡𝐞𝐫𝐞 𝐝𝐢𝐯𝐞𝐫𝐬𝐢𝐟𝐢𝐜𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐦𝐞𝐬 𝐟𝐫𝐨𝐦." So says a new article from Morningstar, at least. But diversification doesn't require giving up upside. That's a constraint of traditional implementation, not a law of portfolio construction. The article includes a table showing what % of funds in each alternative category beat cash. For event-driven, the number is 100%. Every single fund cleared that bar. Under the traditional framework, that doesn't matter much. You sold a mix of stocks and bonds to fund the allocation. Event-driven lagged the opportunity cost. You gave up upside to get diversification. Tradeoff made. But what if you didn't have to sell anything? Return stacking lets you add event-driven exposure on top of your existing stock/bond allocation rather than carving it out. The return hurdle shifts from "beat stocks/bonds" to "beat cash." Suddenly that 100% hit rate matters a lot. You could've picked any manager, stacked them onto a 60/40, and added excess returns. No upside sacrificed. No tradeoff required. Diversification doesn't have to be addition through subtraction.

The 60/40 portfolio just died. Smart money moved to this instead. For decades, 60% stocks, 40% bonds was the gold standard. When stocks fell, bonds rallied. Perfect negative correlation created smooth returns. Then the Fed broke everything. Rising rates destroyed both stocks and bonds simultaneously. The diversification that worked for 40 years vanished overnight. When inflation runs hot, stocks fall on valuation compression while bonds fall on duration risk. There's another issue: longevity. With people living to 100+, portfolios built for 25 years of retirement can't sustain 40+ years of withdrawals. Smart institutional money rotated into diversified alternative credit strategies that generate predictable cash flows without heavy reliance on volatile equity gains or historically low traditional fixed income yields: Merchant Cash Advances: Revenue-based repayment tied to business performance, providing growth participation with downside protection. Covered Call Strategies: Systematic option premium collection creating predictable income streams from equity positions across diverse market benchmarks. Equipment Financing: Asset-backed lending with depreciation schedules providing predictable cash flows and residual value protection. Direct Lending: Senior secured positions with covenant protections, floating rates, and higher yields than traditional fixed income. Invoice Factoring: Short-duration advances against receivables providing consistent turnover and immediate liquidity. This creates multiple predictable income streams operating independently: - MCAs fluctuate with business revenue patterns, not market sentiment - Covered calls generate consistent premiums from equity volatility across various benchmarks - Equipment loans depend on asset utilization cycles, not financial markets - Direct lending captures credit spreads with floating rate protection - Invoice factoring provides liquidity-based returns tied to business operations These strategies smooth out returns with superior risk-reward metrics, alleviating traditional portfolio drags. Adding alternatives isn't theory anymore - Modern Portfolio Theory factually requires diversified income sources for optimal risk-adjusted performance. Family offices are building new structures around diversified alternative credit as the core predictable income component, reducing dependence on volatile equity gains and low-yielding traditional bonds. The old playbook relied on correlations that no longer exist. The new playbook focuses on multiple predictable cash flow sources operating independently of market chaos. What alternative strategies are you using to create more predictable portfolio returns? #AlternativeCredit #AssetAllocation #CoveredCalls #MCA #PrivateCredit #FamilyOffice #ModernPortfolioTheory