Alternative investments are increasingly in the sights of high net worth individuals. The Spanish market, following in the wake of the Anglo-Saxon countries – with a greater tradition in investments in the real economy and in which this type of assets already accounts for 30% of the portfolios of large investors – is focusing part of its portfolios on investment alternative. “In what is not fixed income or variable income to respond to the need to diversify in some of its products.” Jordi Fabregat, professor at the Department of Economics, Finance and Accounting at the Esade business school, as well as director of its Executive Master in Finance, adds “These types of investments here were somewhat lower by tradition, because historically we made variable and fixed income , but more and more these types of products are being introduced into portfolios. There are families that can already have 25%.”
The data is encouraging. Compared to that 30% of the Anglo-Saxon market, the reality in Spain is that an average of 15% of the total investments of large fortunes are invested in alternative investments, although everything indicates that the percentage will grow in the coming years. “The future scenario shows clear growth and it cannot be ruled out that within the portfolios it could perfectly represent 20 or 25% of the total portfolio, in family offices, which does not imply that they are only great fortunes. I think these products can probably fit into portfolios that have 2 or 3 million euros, it is not necessary that they be large fortunes.”
Andbank Spain, specialized in private banking and wealth management, is one of the pioneering firms in making this type of investments available to its clients: from hotel and real estate assets, to investments in airplanes, photovoltaic plants or fintech projects. The entity began in 2012 with the distribution of alternative investments to its clients and currently has more than 1,500 million committed, which represents 7% of the entity’s business volume.
Alternative investments focus on projects related to the real economy, so their profitability is not correlated with the behavior of the markets and they have high returns. Their illiquidity, since they are usually investments in long-term projects, and the high entry fees, is compensated by the expected profitability.
The diversity of these products favors diversification. “The most used are real estate investments, investments in infrastructure, private equity, investments in companies that are not listed on the stock market…. All this helps us diversify the risk of traditional investments and, in effect, the % in the portfolios are increasing” says Jordi Fabregat.
In his opinion, “investments in infrastructure, the real estate market… are very useful because they allow diversification in a simple way, without assuming great risks.” For the Esade professor, these are two huge sectors in which there is a lot of investment, with very large values, although, for example, in private equity there are many more lines of investment often related to issues of sustainability, health, water, needs of the elderly, energy… and of course with everything related to technology and the application of artificial intelligence. “It is a very long list of investment lines that often include small companies with smaller investments but which are key to diversification, which is one of the keys in portfolio management today.”
For Sonsoles Santamaría, general business director of Tressis, “investments in private capital have proven to provide a perfect complement to take advantage of these opportunities, always selecting the best teams of managers to accompany us in the products that we recommend to our clients.” This private banking entity is committed to alternative investments with the aim of helping its investors complement their financial portfolios by taking advantage of opportunities in strategies, sectors, geographies and stages of companies, aligned with their investment goals, risk and sustainability preferences.
“The clearest pro – in Fabregat’s opinion – is their greater profitability, but there is nothing that is free, they probably also have more risk.” The returns depend on the type of investment. While it is true that, in general terms, investing in companies that are not listed on the stock market means assuming more risk due to the illiquidity of those shares, “so you should normally expect a greater return”, it is also true that hedge funds are by definition alternative funds, although they are not usually recommended due to their high success. “They are funds in which the managers have carte blanche but in general we do not know what is behind them.”
The expected liquidity of private equity, of unlisted shares, is higher than that of listed companies. However, he adds, “if the investments focus on the real estate market or infrastructure, the profitability may be somewhat lower, because logically they are safer investments, although in no case risk-free. We just saw the bankruptcy of WeWork; It was worth 47 billion dollars and now it is worth 0.”
Andbank has, today, an investment of 1,290 million in this type of assets, which places them among the main private banks in distribution of alternative investments in our country. “Having been pioneers continues to be an advantage, since it allows us to take advantage of investment opportunities before other entities,” says Eduardo Martín, product director of the entity.
