The following post is courtesy of Diane Harrison who is principal and owner of Panegyric Marketing, a strategic marketing communications firm founded in 2002 specializing in alternative assets.
Every Presidential election cycle, the actual election year begins with much trepidation about taking too definitive a stand too early ahead of the election results. Not knowing what the new administration will bring in policies and practices makes investors of all kinds wary.
ONE STRONG STORY SPEAKS LOUDLY TO NERVOUS INVESTORS
Alternative sales managers find this attitude difficult to overcome this early in the year, but perhaps a revisit of some truisms for alternative selling might be helpful. I covered this topic 4 years ago in 2020 and in reviewing what I said then, find that all of the following is still true for 2024. Here then is a restatement of some of these suggestions:
ALTERNATIVES BEHAVE DIFFERENTLY—Alternative assets typically perform in ways that do not correlate with traditional assets, and as such provide the risk mitigation that is a perennial sales pitch boon. This is never truer than in a year where investors are fearful of making any investment moves away from what’s working towards something that may or may not be working in the near term, particularly since 2023 closed with a rather strong performance in the stock market.
RISK MITIGATION IS A DIRECT CORRELATION TO BEING NON CORRELATED—Investors worry about risks: they fear downside moves, they seek allocation mixes that provide them some measure of comfort that the preparedness for unforeseen changes has been improved. A strong start to getting investors to listen to the alternatives sales pitch in 2024 is to refine its focus by explaining how a particular investment has demonstrated its ability to move in a non or uncorrelated way to traditional assets.
PAINT THE PICTURE WITH CASE STUDY EXAMPLES— Pare down the typical case made for alternatives to this key theme, and support the concept with clear examples and descriptions of how the strategy works and what impact it can have in a portfolio. Some alternatives lend themselves to this approach better than others—commodities, distressed private equity vehicles, event-driven funds, precious metals— to name a few, but the general approach to discussing the lack of correlation to the rest of an investor’s portfolio holds for the majority of alternative assets.
NO ONE CAN TIME THE MARKET SUCCESSFULLY OVER A LONG PERIOD OF TIME—A second key component of this risk mitigation argument in favor of including alternatives into a portfolio is that of timing; specifically that timing cannot be a successful long-term approach to risk management. Virtually all investors will concede that unknown risks can happen anywhere, anytime. Trying to reposition a portfolio defensively after such a risk has negatively impacted the market is far more difficult and less effective than being proactively positioned to lessen such risk’s impact on a portfolio when or if it occurs.
This is the alternatives salesperson’s one-two punch to influence a wary investor: risks are out there, you are worried about them, and our alternative offering can benefit you in lessening this fear or potential impact by providing X and mitigating Y.
Despite being very early in an election year, one thing can be predicted with almost 100% certainty: regardless of the presidential vote outcome in November. The country will remain deeply divided, and Congress will continue to reflect that divide. Sales pitches designed to overcome the general market nervousness and desire to hold onto status quo will tailor their focus to address these very real concerns.