Key Takeaways
- • Envestnet | PMC, the portfolio management consulting division of Envestnet, Inc. (NYSE: ENV), launched the Paradigm Liquid Alternatives Portfolios in 2012 to give advisors a risk-based framework for delivering alternative investments.
- • The lineup comprises three diversified portfolios: the Fixed-Income Complement, the Equity Complement, and the Portfolio Diversifier, each built from multiple liquid alternative vehicles rather than a single strategy.
- • Construction relies on due diligence, a systematic cluster analysis of mutual fund and ETF management styles, and a risk framework that weighs extreme downside, such as the 2007-08 financial crisis, not just standard deviation.
- • Envestnet | PMC positions liquid alternatives on daily liquidity, transparency, cost and tax efficiency, and lower investment minimums relative to traditional alternatives products.
Summary
Envestnet | PMC, the portfolio management consulting division of Envestnet, Inc. (NYSE: ENV), has released a white paper, "New Choices for New Challenges: The Case for Liquid Alternatives," aimed at helping advisors understand how liquid alternatives can provide diversification not readily available from traditional asset classes and potentially shield portfolios from the worst effects of market swings, according to the company's December 13, 2012 press release. The white paper also highlights benefits of liquid alternatives over traditional alternatives products, including daily liquidity, greater transparency, cost and tax efficiencies, and lower investment minimums.
Alongside the paper, Envestnet and PMC launched the Paradigm Liquid Alternatives Portfolios in 2012. The firm says the portfolios were created in response to advisors' need for more effective diversification methods to protect client portfolios from market extremes and preserve wealth. Unlike offerings that focus on a single strategy, Paradigm consists of three diversified portfolio approaches: the Fixed-Income Complement, the Equity Complement, and the Portfolio Diversifier, an "all-season" model designed to minimize a portfolio's overall shortfall risk. Each employs multiple liquid alternative investment vehicles and is tied to specific client goals.
According to the release, the portfolios are built through rigorous due diligence and fund selection, along with a proprietary, systematic process that categorizes and evaluates mutual fund and ETF products through cluster analysis of management styles. Envestnet | PMC Chief Investment Officer Brandon Thomas said the firm researches the liquid alternatives universe, develops groups of peer products with shared objectives, and optimizes them to determine the best exposure for each cluster. A distinguishing feature of the construction process, the company says, is its treatment of risk: beyond standard deviation and overall volatility, it considers the risk posed by extreme lows, such as those seen in the 2007-08 financial crisis.
Thomas said that as traditional asset classes have become more correlated, investors need to "diversify harder" to achieve portfolio protection, and that liquid alternatives are crucial tools for that purpose. Bill Crager, President of Envestnet, described the Paradigm portfolios as evidence of the company's commitment to partnering with advisors on portfolio solutions. The announcement was distributed via PR Newswire from Chicago.
Alongside the paper, Envestnet and PMC launched the Paradigm Liquid Alternatives Portfolios in 2012. The firm says the portfolios were created in response to advisors' need for more effective diversification methods to protect client portfolios from market extremes and preserve wealth. Unlike offerings that focus on a single strategy, Paradigm consists of three diversified portfolio approaches: the Fixed-Income Complement, the Equity Complement, and the Portfolio Diversifier, an "all-season" model designed to minimize a portfolio's overall shortfall risk. Each employs multiple liquid alternative investment vehicles and is tied to specific client goals.
According to the release, the portfolios are built through rigorous due diligence and fund selection, along with a proprietary, systematic process that categorizes and evaluates mutual fund and ETF products through cluster analysis of management styles. Envestnet | PMC Chief Investment Officer Brandon Thomas said the firm researches the liquid alternatives universe, develops groups of peer products with shared objectives, and optimizes them to determine the best exposure for each cluster. A distinguishing feature of the construction process, the company says, is its treatment of risk: beyond standard deviation and overall volatility, it considers the risk posed by extreme lows, such as those seen in the 2007-08 financial crisis.
Thomas said that as traditional asset classes have become more correlated, investors need to "diversify harder" to achieve portfolio protection, and that liquid alternatives are crucial tools for that purpose. Bill Crager, President of Envestnet, described the Paradigm portfolios as evidence of the company's commitment to partnering with advisors on portfolio solutions. The announcement was distributed via PR Newswire from Chicago.
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