Richard Ennis’s Insights: The Fairy Tale of Alternative Investing

Abstract

Advocates of alternative investments (alts), such as private equity, real estate, and hedge funds, ascribe various benefits to alts. These include volatility dampening, low correlation with stocks and bonds, and powerful diversifying effects. Some say that it is alts’ supposed defensive character that has prevented them from keeping up with stocks and bonds during the bull market following the Global Financial Crisis of 2008 and that there is reason to believe alts will be particularly good performers in the event stocks experience a bear market. None of these claims stands up to critical analysis.