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What do investors need to know before adding alternatives to their portfolios?
Key Takeaways
- Britt Harris, CIO & President of UTIMCO, one of the largest endowments in the US, has made a lot of money for his organization through alternative (and particularly private) investments.
- When making the transition to alternative investments, investors need to be aware that selecting a manager and getting access to them can make a huge difference in returns - much bigger than in public markets.
- All alternative investments have lockup periods and private assets have investments time horizons of 4-10 years so investors should make sure to have enough remaining liquidity to meet liabilities.
- Investors must be prepared for a different return profile. Private investments require fees/capital commitments up front which don't offer returns until later down the line - but these returns are higher than in public markets.
Transcript
I'm Britt Harris, I'm the CEO, CIO and president of UTIMCO. We manage 60 billion dollars and we are the second largest endowment in the country, but we manage additional money besides our endowment, [so] of all the people who do manage money [in the country], UTIMCO is the largest.
How do you go from not having any alternative investments to having a fully developed plan? So the first phase is just finding who you want to do business with, like which firms do I want to do business with? And if you look at the private markets, the total return on a long term basis should be a couple hundred basis points higher just in general. But the difference between the best performance and the worst performance is like 15 percent. And so, you know, you're getting that thing in the median, but you're spending your time [on picking managers]. This is where the network comes in and where you need people who can get access and know is it getting to the top twenty five percent? You know, the reward for that versus the risk that you're taking if you're getting about ten point five percent is so high that people want to spend their time. So you have to be willing to spend that time and and you need to understand it what you're getting yourself into.
And you've got to be survive the the down periods so you can get to the up periods. And the first thing is I got to make sure I'm liquid enough to sleep at night. You know, there's no amount of investment return is worth massive anxiety, you know, so you kind of if you're not sleeping at night, you've got too much to have a risk. Somebody needs to explain to you, you know, what's going on. The first part is going to be put money in the ground and you're going to be paying fees and it's not going to be producing returned. This is not the public markets where you buy something the next day, it goes up or down, you know, it's going to take three years, I say, just to kind of get the seeds planted in the field and, you know, and then 10 years before you get get something that's that's really healthy.
We made five hundred eighty two times our five hundred eighty times our money by funding this part of the country you're talking about. But it's also a place where you're going to have a lot of zeros as well. So it has to be a diversified structure. You have to have a long term time horizon. You have to you have to access the people who are really, really good at it. And I'm confident you will. You'll succeed.
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