By: Maria Williams
Any investor knows that a strong portfolio is diverse. Investing in various asset classes is essential, but not everyone appreciates how including alternative investments can add an element of stability—particularly during economic instability. In his tenure as CEO of AIR Asset Management, Richard Beleutz has seen how the complementary nature of traditional and alternative investments can support the resilience of any portfolio.
“Alternative investments” is a broad umbrella term covering investments other than traditional stocks, bonds, and mutual funds. Some of the well-known examples are art, real estate, private credit, and private equity.
Under the alternative investment umbrella, AIR Asset Management emphasizes the importance of non-correlated investments—investments where performance isn’t tied to the stock market. “The returns from our investments in life settlements, annuities, and private credit are non-correlated and exhibit low volatility,” Beleutz says.
AIR Asset Management built a name for itself by focusing on life settlements. This is a strategy where an investor, like a hedge fund or other investment group, typically purchases life insurance policies from policyholders—usually paying significantly more than the cash value the policyholder would receive if they surrendered the policy. The investor pays the policyholder a one-time lump sum, and in return, they receive the death benefit.
This strategy is particularly effective when it comes to insulating investors from the effects of the stock market. “The ultimate return is generated by a mortality event and death benefit, which has nothing to do with what’s going on in the economy,” Beleutz explains. This strategy is relatively low-risk despite generating respectable returns, which isn’t always true with alternative investments.
For instance, one risky alternative investment strategy is investing in up-and-coming artists. An investment group purchases pieces by promising artists early in their careers. As the artist becomes better known, the pieces appreciate value and can be sold for a considerable profit.
However, investors will see little or no return if the artist’s career never gets off the ground. Art investors looking for lower-risk, lower-return opportunities might prefer blue-chip art funds or funds that invest in art by some of the world’s well-known artists.
AIR Asset Management can stay true to its value-based investment strategy in acquiring life insurance policies, knowing they generally do not correlate with broader market movements. While alternative investments might not directly correlate with the stock market, they are not immune to outside influences. AIR Asset Management consistently monitors the financial landscape for shifting trends that might necessitate a change in strategy.
“Eventually, if interest rates went in the double digits like they were in the early 80s, maybe demand would soften for our kind of low double-digits uncorrelated return stream,” Beleutz says. “So over the medium or longer term, there is demand-driven correlation. Any investment bought or sold has some type of correlation from that perspective.”
It’s also worth noting that not every alternative investment will appeal to every type of alternative investor. “This isn’t an asset like venture capital where we’re going to make ten times your money,” Beleutz says of the firm’s focus on life settlements. “This is something that has a fairly conservative risk profile for the return you’re getting, and that’s attractive for our audience of family offices, institutions, and wealth advisors.”
The investment landscape isn’t simple to navigate. But for investors, the right strategy often means maintaining a diversified portfolio and staying ready for anything.
Published by: Nelly Chavez
