The alternative investment environment has changed dramatically over the last several years, says Joseph Morgart, senior vice-president, alternative investments, with Pyramis Global Advisors.
In 1995, the typical Canadian pension plan had a 5% exposure to alternative investments, he says. Today, that exposure is approximately 19%. “Approximately $5 trillion is now represented in alternative investment strategies.”
Within the alternative space, hedge funds have seen significant growth over the last several years, he says. “Since the late 1990s, the hedge fund industry has grown to about a $2-trillion marketplace.”
However, with alternative investing becoming more common, there are several risks that investors should be aware of: returns, volatility, correlation and liquidity. But Morgart points to manager risk, or headline risk, as the one that investors should be particularly conscious of.
“The hedge fund industry has grown pretty significantly over the last five to 10 years,” he says. “As a result, investors—as they look at single strategies—really need to understand, Does that manager have the operational and business capability to run a firm, in addition to running a strategy?”
Watch the video to find out what else Morgart has to say about alternative investments.