Alternative Investments
At Keystone, we specialize in alternative investments and portfolio management. We recognize their crucial role in enhancing your portfolio and are dedicated to guiding you through the complexities of this asset class.
Our aim is to help you identify high-return opportunities while effectively managing and mitigating risks. When executed with sound portfolio management, alternative investments can significantly enhance traditional portfolios and offer substantial benefits.
KEYSTONE RECOGNITION
The Importance of Alternative Investments in Your Portfolio
Alternative investments serve various crucial roles within a portfolio. They can enhance diversification by managing volatility and improving risk-adjusted returns through strategies like hedge funds, non-correlated strategies, and real assets.
They can also aim to deliver above-market returns via strategies like private equity, venture capital, and private credit. Adding alternative investments to a portfolio provides unique opportunities to boost returns and reduce risks, while also helping to buffer against market fluctuations in traditional assets.
Our Approach to Alternative Investments
Our private market investing strategies are rooted in profound market knowledge and a client-focused methodology. We prioritize understanding your unique financial goals and risk tolerance to create a customized private market investing program that aligns perfectly with your objectives.
We are disciplined in our approach yet flexible in investor-level portfolio customization. By integrating private market investments as a core component of your portfolio, we aim to enhance your investment portfolio’s potential.
Access
We provide unparalleled access to exclusive private market investments across multiple channels. Many times, we’ll go direct, and other times, we’ll use low-cost feeders for access based on size.
By leveraging our extensive network and industry relationships, we offer entry points into high-potential alternative investments and strategies that are typically inaccessible to individual investors. This access allows us to construct a diversified portfolio that taps into the full spectrum of high quality alternative investments.
Diligence
Diligence is fundamental to our alternative investments strategy. We perform comprehensive due diligence on every private investment opportunity by evaluating factors such as
- Market Potential
- Performance
- Management and Operations
- Platform
- Investment Process
Additionally, we engage institutional consultants for an extra layer of scrutiny, including manager interviews, background checks, reference calls, and more. This meticulous vetting process ensures that only the most promising private investments make it into your portfolio while safeguarding your assets and maximizing your potential for success.
Customized Portfolio Construction
We believe in the power of customization in private market investing. Our team works closely with you to create a portfolio that aligns with your unique needs and preferences.
By assessing factors such as investment horizon, liquidity requirements, and risk tolerance, we develop tailored private market investing allocations and sub-allocation targets across various sizes, geographies, and primary versus secondary markets. This approach to alternative investments ensures that your portfolio is diversified and uniquely suited to your financial situation.
Portfolio Pacing, Vintage Diversification, and Manager Diversification
Portfolio pacing, vintage diversification, and manager diversification are crucial for effective risk mitigation when constructing and maintaining a private market investing portfolio.
We maintain live pacing models for each client, continuously monitoring cash flows—such as capital calls and distributions—and adjusting new investment commitments based on various factors. This strategy ensures that every client portfolio is diversified both in terms of vintage and manager, while allowing us to target and maintain our private investment target NAVs without exceeding or falling short of expectations.
This proactive approach to alternative investments enables us to respond swiftly to market conditions and capitalize on emerging opportunities. It ensures that your portfolio remains aligned with your objectives and adaptable to evolving economic landscapes.
Private Investment Administration
Capital calls and distributions can be tedious for investors committed to building an investment plan and maintaining a private investment program. We understand this challenge and handle it for all our clients.
Our established processes allow us to monitor liquidity in alternative investment allocations, source capital, and reinvest distributions effectively. By doing so, we remove our clients from this administrative burden.
Tax Sensitivity
At Keystone, we understand that tax implications are a crucial consideration when it comes to alternative investments. Our team works closely with you and your tax advisors to ensure that your portfolio is structured in the most tax-efficient manner possible. If we do decide to invest in a tax-efficient strategy, the manager and alpha potential must be significant enough to justify the tax inefficiency.
Advanced Analytics and Benchmarking: Reporting and Communication
We believe in transparent communication and providing regular updates on the performance of your alternative investments through our detailed reporting system called Addepar. It’s customized to deliver comprehensive information on each investment, including distributions, valuations, exposures, and underlying asset-level data.
Our team is always available to address any questions or concerns you may have about the progress of your alternative investments. Using advanced analytics and benchmarking, we offer detailed insights into your portfolio’s performance, tracking key metrics, comparing investments against industry benchmarks, and identifying areas for improvement.
This data-driven process allows us (and you) to make informed decisions and optimize your investment outcomes.
Types of Alternative Investments That We Invest in
Private Equity
Our private equity investments focus on buyouts, growth equity, and venture capital. We partner with skilled managers who invest in companies with robust fundamentals, exceptional management teams, and significant growth potential. Leveraging our extensive network and thorough due diligence process, we identify promising private equity alternative investments across diverse industries and various company sizes.
Our strategy mirrors a barbell approach. We invest in reputable, private investment funds while also allocating resources to smaller or emerging funds managed by trusted professionals, typically those with backgrounds in larger firms and management teams that we know.
Venture Capital and Growth Equity
We strategically invest in venture capital managers with a proven track record of quality and consistency by focusing on innovative solutions and strong growth potential. Our venture capital investments provide access to the forefront of various industries and allow you to benefit from the success of pioneering companies, sectors, and trends.
Like private equity, our approach here also resembles a barbell strategy. We invest in well-established, recognized funds while also allocating to smaller or newer funds managed by professionals we trust, often those with experience from larger firms.
Private Credit
Our private credit investments provide exposure to corporate debt instruments typically not available through traditional markets. We target stable income streams by investing in senior secured loans, mezzanine debt, distressed debt, and other niche credit strategies.
Private Equity Real Estate
We offer access to a diverse range of real estate private investments across different property types, such as multifamily, commercial, and more. We’ve mostly invested in value-added private equity real estate firms who have unique approaches and a track record of consistency through all market cycles. Our team conducts rigorous market analysis and risk assessment to identify high-potential funds.
Hedge Funds
By investing in hedge funds, we access a range of sophisticated strategies designed to maximize returns and manage risk. This diversified approach to alternative investments offers you a balanced portfolio with enhanced performance potential. Most of our hedge fund investments are tier-one multi-strategy platforms that aim to generate consistent and uncorrelated investment returns with low standard deviations across all market cycles.
Uncorrelated Strategies
We also invest in uncorrelated private investment strategies. We’ll often seek opportunities in niche markets with low correlation to traditional asset classes.
These may include private credit, structured investments, litigation finance, GP interests, and more. They provide further diversification and potential for higher uncorrelated market returns.
Co-investments
Many of our private market investments, such as venture and private equity allow our clients to participate in co-investment opportunities. We provide you with access to unique deals and the potential for enhanced returns. These can often enhance risk-return profiles, especially during market downturns.
Why Add Private Market Investments to Your Portfolio?
Private market investments offer a way to diversify portfolios and potentially enhance returns by tapping into private market opportunities. These alternative investments often provide access to unique and emerging companies, sectors, and strategies not available through traditional public markets.
The active ownership and deep sector expertise of private market asset managers can significantly enhance value by aligning economic incentives more effectively between company management and investment managers. Additionally, private investments typically have longer investment horizons that allow for more significant potential upside over time.
Custom Private Investment Solutions and Deep Expertise
At Keystone, each client’s portfolio is customized to align with their overall performance and risk objectives. Our founders and team members bring decades of experience by leveraging a global network to source and access the best private market investments. We offer custom solutions to ensure your alternative investments are strategically positioned to maximize returns and mitigate risks.
Full-Service Partner
We provide hands-on support in performance reporting, managing capital calls, distributions, credit lines, and cash-flow forecasting. Our transparent reporting and commitment to delivering returns make us your trusted partner in navigating the private market investing landscape.
Explore the potential of alternative investments with Keystone and let us help you achieve your financial goals with our expert approach and personalized service.
Frequently Asked Questions
Alternative investments encompass a variety of asset classes beyond traditional stocks and bonds. Common examples include:
- Private Equity
- Hedge Funds
- Real Estate
- Commodities
- Infrastructure
- Venture Capital
- Private Credit
These alternative investments often provide diversification benefits and may exhibit lower correlations with traditional financial markets, which can help manage overall portfolio risk. By integrating alternative investments into your portfolio, you can potentially enhance returns and take advantage of unique market opportunities.
The three main types of alternative investments include private equity, real estate, and hedge funds.
- Private Equity: This category involves investing directly in private companies or engaging in buyouts of public companies to delist them from stock exchanges. Private equity investments focus on generating strong returns through strategic management improvements, restructuring, and growth initiatives.
- Real Estate: Alternative investments in real estate provide exposure to various property types, including commercial, residential, and industrial, often through private equity real estate funds. Investors can benefit from rental income, capital appreciation, and diversification from traditional equity and fixed income investments.
- Hedge Funds: Hedge funds employ a range of sophisticated strategies to achieve high returns, including long/short equity, event-driven, global macro, and arbitrage techniques. These funds typically have greater flexibility in their private investment approaches and can invest across various asset classes, including equity, debt, currencies, and derivatives.
Mutual funds are generally not classified as alternative investments as they typically pool funds to invest in traditional asset classes like stocks and bonds. However, some mutual funds may focus on alternative strategies or assets, incorporating elements of private equity, real estate, or derivatives.
These specialized funds aim to provide investors with exposure to alternative investment returns while still operating within the framework of mutual fund regulation. Therefore, while most mutual funds do not fall into the category of alternative investments, those that utilize alternative strategies can offer a bridge between traditional and alternative investment opportunities.
Private market investments often offer higher potential returns but carry greater risks compared to traditional assets. Such alternative investments may lack transparency, have limited liquidity, and require longer investment horizons.
Additionally, alternative strategies often employ complex techniques or invest in less-regulated markets that make them prone to increased market volatility or fraud risk. Therefore, it is essential to conduct thorough due diligence and consult with experienced professionals before investing in alternative opportunities.