Traditional investment managers typically buy and invest in assets such as stocks, bonds, money markets, or some combination of the three.
By contrast, alternative investments managers invest in non-traditional assets, such as private equity, commodities, real estate, or infrastructure, or they invest in stocks, bonds, and money market instruments but use non-traditional strategies, such as going short or using derivatives to gain exposure and leverage on the underlying assets.
Alternative investments have grown from a small, niche segment of the investment industry in the early 1990s to become an integral part of sophisticated investors’ asset allocation strategy. Alternative investments often move independently of traditional asset classes, so they are appealing to investors seeking diversification benefits.
Required Skills in Alternatives Investing
Like their traditional counterparts, alternative investment managers need to be very analytical and able to step back and see the broader macroeconomic landscape.
You will be an expert in performing fundamental research to generate investment ideas. You will be assessing a large amount of data daily, so being skilled at removing what information is noise and what is important is critical.
You will also be comfortable working independently and within a small team. Strong written and oral communication is needed, as you need to be able to “sell” your ideas to internal and external stakeholders.
Tools Used in Alternatives Investing
Financial models are vital to alternative investment managers, so excellent Excel skills are essential, especially at the junior level, when you are more likely to be tasked with developing the models. You’ll likely use Bloomberg or a platform like Refinitive Eikon for much of your research and data analysis.
You’ll likely have internal software and platforms to give you the specialized insights alternative investment managers always require. These will often revolve around portfolio analytics, such as performance data and information on risk exposures, to help with your investment decision-making.
Any investment management, either in the alternatives or traditional investment management space, requires interacting with various internal stakeholders daily, so you must build and maintain strong relationships.
Your board of management is the key internal stakeholder. The board sets the strategy for the investment firm. You will meet with them regularly so that changes in strategy or market conditions that require adjustments to your portfolio can are made quickly. Other internal stakeholders include technology, risk, performance, finance, and various project managers.
Externally, your critical stakeholders are your investors. How often you meet with them will vary based on the type of alternative fund or strategy you are managing. Still, you will need to provide written communication on performance, strategy, and outlook on a regular basis.
A Typical Day in Alternative Investments
You’ll start your day by looking at your up-to-date portfolio metrics. These were produced overnight from your internal IT systems and processes. Once you confirm nothing needs your attention, you’ll catch up on all the overnight news and events from the financial markets, focusing on the information likely to impact your portfolio the most.
You then have an investment team meeting with analysts and investment managers. In this meeting, you will reflect on the fund’s recent performance and discuss whether the portfolio needs any tactical adjustments.
Late morning is a meeting with your chief investment officer. They want an update on the fund performance, what upcoming changes you expect, and that the fund continues to be aligned with the firm’s broader strategy.
After lunch is more reading and research before a series of calls with analysts from sell-side investment banks. It’s essential to test your views against independent analysis.
The end of your day involves reading what happened in the financial markets in your part of the world.
Qualifications and Experience for Alternatives Investors
A bachelor’s degree in finance, economics, mathematics, sciences, or other business-related areas is usually non-negotiable in these roles, with higher qualifications such as MBAs well regarded.
Before moving into an alternative investment role, you will usually need to gain some analytical experience, often as an investment analyst in a traditional buy-side firm or investment bank.
Senior positions will certainly need experience in alternative investments in the specific area you will be moving into. The alternative investment universe is broad, and specific expertise is required to manage significant assets in that area.
Compensation for Alternatives Investors
Working in the investment team of an alternative investment manager is very lucrative. The high compensation reflects the responsibility of managing large amounts of other people’s money and the expertise needed to implement specific strategies.
Compensation will have a significant performance element to it. The better your investment returns, the bigger your bonuses. The most successful alternative investment managers earn some of the largest annual bonuses paid in finance.
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