$17 billion
The amount that German pharmaceutical company Merck will pay to acquire U.S. firm Sigma-Aldrich to strengthen its position in the life-science industry.
(Source: WSJ)
The nation’s largest pension fund, the California Public Employees Retirement System, better known as CalPERS has been in the news this week with an announcement that they are going to be liquidating their $4B hedge fund allocation over the next year. Apparently, the high costs and complexities, combined with their ability to scale the asset class relative to their $300B portfolio just isn’t worth the effort.
While on the surface this may seem like shocking news, in reality, this isn’t surprising – its simply another data point confirming the transition from traditional alternatives to liquid alts is real and likely to continue. Given the higher costs, and other burdens (K-1 tax returns, lockups, accredited investor mandates, lack of transparency, scandals/Madoff, high minimums, and others) with the partnership form of traditional alternatives, its logical that more advisors and investors will continue to consider liquid alts as either a replacement for their traditional alternatives allocation, or to in an effort to enhance their traditional two-dimensional stock-bond portfolios.
CalPERS announcement prompted us to take a closer look at their portfolio as compared to the Endowment Index™ calculated by Nasdaq OMX®. The Endowment Index represents the asset allocation portfolio holdings of over institutions managing over $400 billion in total assets.
Endowment Index™ vs. CalPERS Asset Allocation and 10 Year Return History
*For 10 year period ending June 30, 2014. Returns are annualized.
Past performance no guarantee of future results. The above is presented for informational purposes only and is not intended as investment advice. Index data presented for comparison purposes only. Indexes don’t have fees. You cannot invest directly in an index. Endowment Index data prior to May 19, 2014 contains backtested data, which contains certain weaknesses. Click here for additional disclosure on back testing.
Rob Riedl, Director of Wealth Management is featured in an interview conducted by Direct Capital’s Small Business Success experts group, which highlights traits of successful small business owners. Rob’s comment:
They remained focused on the opportunity to be successful and are not distracted by the possibility of failure. They are always all in and never give up!
The entire list, which includes observations and comments from 49 other small business professionals can be found on the DirectCapital Blog.
An article titled “A Better Option Than Target-Date Funds” written by Prateek Mehrotra, CIO of ETF Model Solutions and Endowment Wealth Management was recently published in the Industry Voices column on PlanSponsor.com.
In the article, Prateek discusses the following drawbacks of TDFs:
- TDFs assume a “one-size fits all” and fail to take into account unique risk profiles and investment objectives of participants
- TDFs mechanical shift to conservative assets in later years sacrifices growth opportunities
- There is no industry standard for the optimal portfolio allocation
- TDFs with higher allocations to long-term bonds are more sensitive to interest rate risk
He also suggests that because equity prices are extended, investors in retirement plans might want to consider reducing their interest rate risk and equity risk by diversifying into alternative asset classes with lower correlation to stocks and bonds, such as commodities, real estate, hedge funds and private equity- asset classes to which TDFs do not typically allocate.
The entire article can be read here.
Comments from Prateek Mehrotra, CIO of Endowment Wealth Management, Inc., were printed in InstitutionalInvestor.com earlier today in an article titled Portfolio Perspective: Warning Signs for Your Client’s Stock Market Exposure. In the article, Prateek discusses a number of valuation metrics that he follows, many of which are extended. This leaves the market potentially vulnerable to a “mean-reversion” type correction, although there is room for further upside in equity prices. He further comments that “Portfolios can be cushioned from a U.S. sell-off by diversifying across hedged equity, foreign developed and emerging-markets stocks, nontraditional fixed income, master limited partnerships (MLPs), real estate, commodities and other liquid alternatives”. The entire article can be found at the bottom of Institutional Investor’s Daily Agenda column.
Does this Bull Market have legs?
(Source: Bespoke Investment Group)