Monday, December 6, 2021

Alternative Income Strategies: One Possible Antidote to the Investor’s Challenge

The “investor’s challenge,” as we have labeled it, is generally defined by muted long-term expected returns across asset classes with a dramatic loss in the overall portfolio utility of nominal bonds at its core. As the primary risk anchor within most institutional portfolios, investors are in a desperate search for supplements to this important fixed income portfolio allocation. In this introductory note, we review Alternative Income strategies, which, while not a direct replacement for traditional fixed income, have the potential to provide several key investment characteristics that might improve investors’ chances of prudently supplementing the “40” in the proverbial “60/40” portfolio. While Alternative Income financing grew in response to address borrowers’ needs following the Global Financial Crisis, their economic rationale should endure long term and provide institutions with viable investment options well into the future, even after the current investor’s challenge has subsided.
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