CONTRIBUTORS
Tony Davidow, CIMA®
Senior Alternatives Investment Strategist
Franklin Templeton Institute
In the latest episode of our “Alternative Allocations” podcast series, I had the opportunity to speak to Ben Webb, Director of Investment Strategy, Balentine Investments. Ben and I discussed allocating capital and the opportunities in private markets. Ben provided his perspective on communicating the merits of alternatives to clients, and the importance of providing transparency with respect to the features and benefits of these new structures coming to market.
Ben discussed how their due diligence is geared toward identifying unique opportunities. “We turn over every rock, look behind every tree, and really find what are the unique assets that we can deliver to our clients to help them reach their goal. And one of the things I've been saying is that if the advice around public markets and even first level financial planning is becoming commoditized, so to really be able to give our clients something that they can't get through their Schwab account is really what drives us into this alternative world.”
Like many firms, alternatives are becoming the differentiator for advisors as they seek to solve their client needs with a broader toolbox. Ballentine often begins with a 20% allocation to alternatives. In evaluating funds, Ben discussed the 4-Ps (people, process, philosophy and performance), with an emphasis on the people. In the private markets, he said it is imperative that firms have deep and dedicated resources. Ben mentioned shying away from Fund 1 and 2 (vintage year 1 and vintage year 2) because he wants to see the managers’ experience in allocating capital.
From an opportunity perspective, Ben likes private debt (credit).
“I've been saying for about a year now that I believe over the next cycle that debt is going to eat [private] equity’s lunch. And what I have a hard time finding is if you're expecting 15-ish [%] return from [private] equities, and 12% from your private debt, why would you take that risk? Just let's be higher in the capital stack.”
With respect to real estate, while the office sector has garnered a lot of attention, sectors like multi-family look attractive to him. From a thematic perspective, Ben likes “picks and shovels for AI, data centers and fabrication centers.”
I really enjoyed my conversation with Ben Webb. He understands the challenges and opportunities in private markets, and he believes in their long-term merits. Ballentine employs a rational and consistent process when allocating to alternatives.
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WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Equity securities are subject to price fluctuation and possible loss of principal. Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. An investment strategy focused primarily on privately held companies presents certain challenges and involves incremental risks as opposed to investments in public companies, such as dealing with the lack of available information about these companies as well as their general lack of liquidity. Diversification does not guarantee a profit or protect against a loss.
An investment in private securities (such as private equity or private credit) or vehicles which invest in them, should be viewed as illiquid and may require a long-term commitment with no certainty of return. The value of and return on such investments will vary due to, among other things, changes in market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets and the financial condition of the issuers of the investments. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor’s ability to dispose of them at a favorable time or price. Past performance does not guarantee future results.