Control Alts + Delete Pension Dogma

If pensions were an Olympic sport I’m thinking Modern Pentathlon right now. Rarely viewed, poorly understood and then animal spirits can wreck one’s hopes. Horses bolt, pensions blow up. Where are the animal spirits you ask? Well, the traditional pension structure contains 60% equities riding a safety buffer of 40% bonds. The hope is that low-risk bonds will smooth the volatility of riskier equities on your pension journey. However, this week we have read that there are a whopping $16 trillion of negatively yielding bonds sitting in investment accounts across the globe. In other words, the bond world is riding a horse which has never been so expensively priced.

One would need Olympian optimism to think these bonds will sufficiently off-set any shocks experienced in periods of equity volatility. They won’t. Actually, I would go further and suggest we need to quit traditional pension assumptions. Control-Alt-Delete might be a keyboard quit function but in the investment world we are witnessing a pronounced shift by the most influential investors into alternative investments, or ‘Alts’ as described in market-speak. Alts are financial assets which don’t fall into one of the conventional asset classes like equities, bonds or cash but they are now generating some eye-catching data points. Here’s a few snippets which would suggest the Control of Alts is a very big business:

  • UBS the world’s largest wealth custodian recently reported that its family office clients who think long-term allocate 35% of their portfolio to alternative investments(Private equity, real estate, hedge funds etc).
  • For context, their allocation to bonds is just 17% or less than half the Alts component and way lower than traditional pension fund guidance/thinking.
  • Blackstone, the private equity giant, estimates the size of the assets under management(AUM) invested in Alts at $14 trillion.
  • As an illustration of the growing influence of Alts, the world’s largest Alts player, Blackstone, overtook Goldman Sachs in market value in the past week.
  • Private equity/Venture capital deals are on course to break the $1 trillion level in 2021. That is triple the levels achieved only a decade ago(2011). Source Bain &Co.


It would be easy to dismiss these moves as exclusive opportunities for high net worth(HNW) investors but we need to look a little closer. Blackstone is currently attracting $4 billion of assets every month from main street retail investors. Some retail investors are skipping the Wall Street intermediaries completely and trading for free on Robinhood but that’s not really pension construction territory. However, equity crowdfunding is presenting retail investors with the opportunity to build their very own venture capital(VC) fund with zero costs. Of course, there is risk involved but one wonders what younger savers will think of negatively yielding bonds on a 30-40 year journey when the “democratization” of financial markets offers up the following:

  • The global cryptocurrency/blockchain universe of assets is approaching $2 trillion.
  • The creator economy of individuals monetising their online activities is estimated to number more than 50 million people per VC firm, Signal Fire.
  • These creators can now issue their own digital tokens of value(NFTs) thanks to blockchain technology. That allows fans and followers to back/invest in these creators early. Yes, there is a “valuation” question surrounding these creators but….
  • The richest man in the world, Bernard Arnault, has amassed an almost $200 billion fortune selling luxury items totally dependent on “perceived” value of relatively scarce items. And…
  • Rihanna has generated $1.7 billion of wealth in fashion, not music. Oh, and Ronaldo makes $40 million a year on Instagram, considerably more than his efforts on the sporting fields of Turin.

It is clear the world of alternative investments is challenging the orthodoxy of 60/40 pension allocations. In particular, the most savvy investors are reducing their exposure to bond markets at all time pricing highs. What is not clear is which alternatives will be the best performers, but all the best pensions have three critical weapons:

  1. A Plan
  2. Time
  3. Diversified Assets

It might be worth checking your pension and considering other risk alternatives because debt is now a risk asset not a safe haven. Indeed, our sense is that influential capital has already quit traditional pension dogma and is racing to control more Alts.


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