Investing in non-correlated assets is becoming increasingly popular, especially among wealth managers looking to diversify their clients’ portfolios. Chris Heller, co-founder of Cordillera Investment Partners, considered investing $10mn in an alligator farm in Georgia, but ultimately decided against it. However, the demand for non-correlated assets remains high among Heller’s clients who are looking for investments that can earn healthy returns without tracking traditional markets. This strategy is crucial as many investments today are correlated to benchmark indices like the S&P 500.
In the midst of a changing attitude towards risk from wealthy clients, advisors are now exploring non-correlated assets more regularly. These assets can provide a hedge during bear markets when traditional investments falter. Investments like collectibles, specialist hedge funds, and early-stage equity investments are gaining traction as clients seek true diversification. Family offices, in particular, are interested in niche investments that offer limited competition from larger institutions. These unconventional investments can provide diversification benefits to a broader portfolio.
One such unconventional investment is in consumables like whisky, which increase in value with aging. Heller’s Cordillera Investment Partners purchases newly made whisky and ages it in casks before selling it back to distilleries, thus providing necessary funding during the aging process. While some exotic investments like music royalties have fallen out of favor due to rising interest rates, others like litigation funding have seen significant growth in recent years. The focus is now shifting towards sustainable investments with long-term potential for outperformance and lower correlation with traditional markets.
One example of sustainable investment is in data centers that process large amounts of data for ecommerce and AI calculations. Companies like Submer are developing sustainable methods to cool servers, reducing energy consumption in the process. Another investment in a crystalline additive called Nanogence aims to reduce the amount of cement required to make concrete, thereby lowering CO2 emissions. These sustainable investments offer both growth potential and diversification benefits to investor portfolios.
Despite the risks associated with exotic investments, many wealth managers and family offices are drawn to the potential rewards they offer. From alligator farming to whisky aging, these alternative investments can provide unique opportunities for diversification and hedging against traditional market fluctuations. As the search for head-turning investment ideas continues, the importance of non-correlated assets in a well-diversified portfolio remains a key consideration for investors looking to protect and grow their wealth in today’s ever-changing market environment.
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