News & insights

Time to consider a portfolio adjustment – alternatives or private markets?

SMSF Connect

Published: 3 June 2024

By Ian Irvine


We’re getting close to the end of the financial year; a time when we may reflect on the year past and consider tending to our SMSF portfolios to rebalance, perhaps sell or buy investments in order to catch opportunities or to tilt towards our longer-term objective.

As we have discussed on a number of occasions, investing is for the long term and portfolio rebalancing over time is more often evolution, rather than revolution. It’s also a good opportunity to seek out new ideas to see if they may fit within our investments plans. With this in mind, during my travels to investor conferences of late, I’m finding a lot more conversations about ‘alternatives’ and ‘private markets’, so I thought it may be useful to explore these asset classes a little further.

‘Alternatives’ are typically alternatives to equities, bonds or cash and can include asset classes, such as infrastructure, private credit/debt (loans to businesses), private equity (investments in distressed assets/business or emerging opportunities) or commodities for example.

The term ‘private markets’ has typically applied to markets that are not available on public exchanges, such as ASX. Investors into private markets are generally required to make significant investments, $500,000+ to gain access to the underlying assets.

Over recent years this has changed with these asset classes, both alternatives and private markets, becoming more easily available for retail and SMSF investors via access to entities listed on exchanges like as ASX.

To find out more, I asked three fundies managing different assets classes in these markets for a quick overview of what they do and why an ASX listed closed-end structure is suited to holding these assets.

First up I spoke with Jason Beddow, Managing Director of Argo Global Infrastructure (ASX: ALI).

Ian: Jason, many of our readers will know Argo Investments Limited (ASX: ARG), which invests in Australian equities, however some may not be familiar with ALI, tell us a little more.

Jason: Thanks Ian, in 2015, Argo Investments established Argo Infrastructure as and it still is the only ASX-listed investment company offering investors exposure to global infrastructure stocks. Our portfolio is managed by specialist New York Stock Exchange-listed fund manager Cohen & Steers from offices worldwide.

Ian: So, why global listed infrastructure?

Jason: For Australian retail investors, there are now just a handful of infrastructure companies listed on the ASX, and they represent only a few types of infrastructure assets. Beyond our shores, there are more than 350 listed infrastructure companies with infrastructure assets across both emerging and developed economies. The global listed infrastructure universe includes all types of infrastructure companies including subsectors leveraged to the most significant structural economic trends of our time, including the AI boom and energy transition.

Ian: And the LIC structure works for you?

Jason: Argo Infrastructure’s straightforward ASX-listed investment company structure offers investors simple exposure to this large and often complex asset class through a single ASX trade.

Ian: There are other benefits provided by the LIC structure, which is effectively an Australian company listed on ASX like many other entities.

Jason: Yes, there is, a significant benefit of investing in international assets via a LIC structure, particularly the ability to generate franking credits because the LIC pays tax in Australia. This is a unique advantage not offered by other managed investments that invest in offshore assets (such as trusts) or by investing directly overseas.

Next I spoke with Andrew Lockhart, Managing Partner of Metrics Credit, a private debt manager with two listed investment trusts (LITs) available on ASX, (ASX: MXT and MOT).

Ian: Andrew, tell us a little about what Metrics does and what do you see as the benefits to investors.

Andrew: As part of its broader range of private debt funds, Metrics Credit Partners offers two listed investment trusts that provide daily liquidity but are exposed to the volatility of the share market. The potential benefits of private debt include both reduced capital volatility and attractive risk-adjusted returns that rise with inflation.

Ian: What should investors look for when considering including private debt in a portfolio or SMSF?

Andrew: Regardless of fund structure, investors should apply key considerations to the choice of a private debt manager. These include whether the manager has both a track record and an appropriately diversified portfolio of loans. It’s also important to opt for an experienced team with the necessary skills to assess the credit risk of borrowers. Funds which hold relatively low risk positions in senior secured or investment grade debt may be suitable for defensive investors seeking an alternative to traditional bonds. Funds which provide exposure to sub-investment grade debt or alternative parts of the capital structure can replace part of an investor’s allocation to equities.

Rounding out our discussion, I spoke with Dania Zinurova, Portfolio Manager of WAM Alternatives (ASX: WMA) at Wilson Asset Management. Here’s what she had to say.

Ian: Dania, what is WAM Alternatives?

Dania: WAM Alternative Assets is the only listed investment company listed on the ASX that gives access to retail and wholesale investors in Australia to a well-diversified portfolio of alternative assets.

Ian: What type of assets does WAM Alternatives hold?

Dania: We invest in private equity, infrastructure, private debt, real estate and real estate across the risk-return spectrum.

Ian: Dania, that’s a broad range of asset types.

Dania: Yes. It is; Its main objective is to provide diversification benefits, deliver relatively stable yield, with attached tax benefits due to the LIC structure and strong potential for capital growth by investing in private equity and other growth strategies. Its structure enables investors to invest in those strategies without taking on illiquidity risk.

Ian: And the closed end structure of the LIC works for you?

Dania: Yes, and for our investors as the LIC structure enables us to take a long-term view and manage the portfolio consistently across the economic cycles as there is no redemption or commitment mechanism as with unlisted or open-end trusts structures. Shareholders can instead buy or sell their shares in WAM Alternative Assets on ASX based on their individual investment goals and objectives.