Presented by Fedgroup

Beyond the cookie-cutter: creating custom solutions for institutional investors

 ·15 Apr 2024

Whether you indulge as a tea-time treat, after-dinner snack, or just as a general pick me up, almost everyone enjoys a good cookie every now and again.

While the store-bought goods get the job done, often, it’s those cookies that are carefully crafted by loving hands with an understanding of our deepest desires that taste the best.

And the same holds true for investments.

Discerning investors seek bespoke solutions tailored to their unique needs, even more so when they are charged with tending to the needs of others.

As custodians of substantial capital, institutional investors demand more than off-the-shelf investment strategies.

The right mix of ingredients, in the right hands, can deliver offerings that help investors craft customised investment strategies that transcend the limitations of generic offerings, delivering optimal outcomes, and client satisfaction.

The basic structure of most investment offerings follows the same recipe. And just as grandma carefully selects the finest ingredients to concoct a delectable treat, specialist providers meticulously curate investment components to create bespoke investment solutions.

Each ingredient, whether it’s financial licences or structures, asset allocation, risk management, or performance measurement, must be blended seamlessly to produce an offering that satisfies their clients’ unique palates.

But any baker worth their salt (or sugar) knows that the magic lies in the secret ingredients.

In a world inundated with one-size-fits-all solutions and generic investment strategies, institutional investors are left with intense cravings and nothing that truly ever hits the spot.

These solutions and strategies have served investors well in the past, and did what they were supposed to do, but while we became accustomed to the convenience of these off-the-shelf options, the economic landscape shifted.

Asset classes that traditionally performed well struggled to hold their own against the massive volatility we’ve experienced in recent years, but we’ve remained blinkered to their diminishing performance and are only now starting to realise that it’s no longer good enough.

Much like when your favourite brand adjusts their recipe one too many times and you suddenly realise that it just doesn’t taste the same anymore.

It then stands to reason that asset managers, fund managers, family offices, and even banks, are looking for solutions that will give their clients something to look forward to.

A smoother investment journey with more reliable returns that, coupled with a warm glass of milk, will help them sleep easier at night.

In fairness, we don’t believe any one asset class should be kicked out of the recipe book because it’s had a bad year – or five.

We’re simply saying it’s time to get back to the recipes we first fell in love with before convenience took over and we started buying the same generic options everyone else bought. It’s time to look at alternatives.

The alternative asset class makes up most options available in the market, outside of the traditional bonds and stocks.

While all of them are undeniably different from traditional assets, they aren’t all the same. Similar to how you might find cake flour and almond flour in the same aisle, despite the fact that they tend to deliver different results.

Picking the right alternative assets is as important as considering them to begin with, and you need a specialist understanding of these assets, how they perform, their risk factors, and how to combine them for the best results.

For example, opting to include alternative assets that are counter-cyclical, delinked from market sentiment, and make a positive impact on the real economy by addressing issues such as employment, food security, and energy production carry a lower risk than cryptocurrency or collectible cars.

And they’re more likely to deliver smoother returns that are still competitive, which will go down well with clients.

Although many providers have sufficient structures in place, few, unfortunately, have the requisite understanding of, and access to, this asset class to develop offerings that go beyond the cookie-cutter to deliver true value and differentiation.

In what has become a competitive landscape, the investment strategies that will ultimately prove capable of taking the heat and still satisfying clients, are those that explore the benefits of all available asset classes and offerings, in a carefully blended portfolio that they can’t wait to gush about over tea.

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