Defensive properties of Alternative Assets 

The Scheme’s In-Tandem options have allocations to Alternative assets, which encompass a wide range of different strategies, many of which are quite complicated.

Common features of Alternative Assets are:
 

• They provide unique sources of return from skilled managers, or from investing in non-traditional markets (like insurance)
• They perform differently to traditional asset classes (like equities and bonds) which means they offer strong diversification benefits (ie not “putting all your eggs in one basket”)
• If well structured, they may provide downside protection (when most markets are going down, Alternative Assets have potential to protect capital or even go up).

For example a long-short hedge manager may take a position that media companies will perform better than healthcare companies. Even if both sets of companies depreciate in value, so long as healthcare does worse than media, this alternative strategy will make money.

Whilst Alternative Assets are considered “Growth” rather than “Defensive“ strategies, they generally have both growth and defensive properties. Like shares, they have potential to earn high returns (growth like), but because what drives their returns is different to shares, they can perform well even when share markets are crashing, hence defensive attributes.

Source: Willis Towers Watson