Thursday, 10 October 2013
Should DC Plans Include Alternative Investments?
As of 2010, employee benefit plans had about $3 trillion invested in alternative investment offerings. From this, returns have been steady, and providing customers with an average of 5 to 10 per cent, which represents a reasonably safe investment that can be expected to grow over time. According to Morningstar, during 2010, 34 percent of institutions had more than one-quarter of their portfolios in alternatives. Research released in 2012 showed 78 per cent of all advisers were using alternatives. Most alternatives are appealing to investors because they can include private equity and other illiquid types of investments. But they are not always among the more exotic investments, either. Investing, for instance, in gold, real estate and timber is considered by many to be an alternative investment.
It would seem that in times of economic uncertainty and high volatility, alternatives are the solution for many worried investors. Because of their ability to hedge against inflation and protect investment principle, an increasing number of investment-seekers would like to see added exposure to alternative investments in their DC plans. Analysts (and myself included) agree that introducing hard assets would provide long-term benefits for investors, offer stability in tumultuous times and encourage profitability for the investing plans.