The graph shows a clear disparity between property and private equity on one side and infrastructure, commodities and hedge funds on the other.
Property and private equity suffered greatly as a result of the financial crisis and have yet to recoup their losses. Infrastructure, however, has managed to produce steady upward growth. Commodities have been more volatile but have managed to produce positive returns, while hedge funds have recorded flat performance in the past few years despite recovering from their losses in 2009.
Commercial property funds are perhaps the most mainstream of them all and, while some would argue this is not an alternative asset, the fact it has a low correlation to equities over the long term means it lies in this category. “The method that you [employ to] get access to alternatives is important,” Mr Hervey at Berenberg says, adding commercial property is the easiest. Currently it is possible to invest in open-ended funds that invest either in direct property or in company shares, while real estate investment trusts (Reits) also allow investment into direct or indirect holdings.
While the commercial property sector went through a slump following the market correction of 2007, many strategists see opportunities opening up. Figures from Investment Property Databank (IPD) show commercial property in the UK returned 2.6 per cent in the 12 months to the end of November 2012. While that is not a high return by any means, it is the yield property generates that is the big attraction.
Unfortunately, values fell by 3.9 per cent in 2012 while rents increased by 3.1 per cent in the City and West End of London, but fell by 4 per cent elsewhere. Nevertheless, the income return from property, IPD says, was 6.2 per cent in the first 11 months of 2012.
Private equity funds are also a favourite among wealth managers, but it is necessary to be selective here, says Mr Maltin at Rathbones. He says private equity can be a difficult sector to gauge and is therefore one market where it is necessary to invest on trust.
Private equity could represent good value as many funds are still trading at deep discounts to their net asset value (Nav). When the markets dropped in 2008, this sector was one of the most badly hit and discounts widened to as much as 60 per cent. While investor sentiment drifted away from listed private equity funds and share prices tumbled, the assets backing them have in many cases held their value and analysts see opportunities here. However, despite statements that these funds are undervalued, their discounts remain wide.
