Alternative investing

Why consider alternative investments

As markets have evolved, a growing universe of alternative investments have emerged that offer investors a greater array of options to achieve the returns necessary to meet financial goals across economic cycles in a risk-managed way. We help our clients to understand the unique risks and benefits of this asset class before incorporating them into an investment portfolio.

Following RBC’s strategic asset allocation guidance, we can determine which alternatives are the most suitable, while considering each client’s investment objectives and time horizon in order to select the appropriate strategies and optimize their impact in an investment portfolio

What are alternative investments?

Alternative investments cover a wide range of assets and strategies outside of a traditional stock-bond portfolio. Two main categories of alternative investments include: private market alternatives and public market alternatives.

Private market alternatives

These alternatives provide access to equity investments in non-publicly traded companies and debt investments in directly originated private loans. Investors typically require a higher return on these less liquid investments as compensation for this risk.

Private equity

Invests in non-publicly traded companies, ranging from startups to large private enterprises. Key types of private equity strategies include buyout, growth and venture capital.

Private debt

Financing that does not involve a traditional bank. Common types include lending to companies and investing in structures backed by pools of assets.

Real assets

Investments in tangible assets that are used for productive purposes, such as real estate, infrastructure and natural resources.

Public market alternatives

This category of alternatives provides differentiated exposure to traditional asset classes via fund structures that employ more complex trading strategies to a target a specific risk return profile.

Hedge funds and liquid alternatives

A pooled investment fund that holds mainly liquid (and at times illiquid) assets and makes use of complex trading and risk management techniques to seek to improve investment performance and potentially insulate returns from public market risk.

How do we use them?

With a broad range of alternative investments available, it's important for investors to understand the unique risks and benefits of this asset class before incorporating them into an investment portfolio. It's also worth understanding the various strategies available to the impact in an investment portfolio.

Following RBC's strategic asset allocation guidance, we can determine which alternatives are the most suitable, while considering each client's investment time horizon and investment objectives, to effectively include alternatives into a portfolio.

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Return enhancement

Investors can often be paid to take on illiquidity as well as access less efficient parts of the market through alternatives, which may drive higher returns than traditional investments.

Portfolio diversification

Alternatives can often access asset classes that are not available through traditional markets, increasing portfolio diversification.

Current yield

Alternatives such as alternative credit and real assets have the potential to deliver higher yields with lower volatility than their publicly traded counterparts.

Volatility mitigation

Alternatives often rely less on broad market trends and more on the strength of each specific investment. This low correlation to broad markets may decrease portfolio volatility.

Inflation protection

Some alternatives, including real estate and agriculture, have inflation hedging properties stemming from an ability to benefit from increasing prices.

Tax benefits

Some structures used in alternatives strategies may offer tax benefits, including REITs and BDCs, as can certain government programs.