Ep. 95 Understanding Alternative Investments

Expanding Your Investment Horizons

Alternative investments offer significant opportunities for superior risk-adjusted returns and portfolio diversification. Yet, many high-net-worth investors find their portfolios under-allocated to these assets. In Episode 95 of the Live Life Liberated podcast, Chris Osmond, CFA, CAIA®, CFP®, Chief Investment Officer at Centura Wealth Advisory, shares insights on the role of alternative investments and how Centura approaches them.

What Are Alternative Investments?

“If you just look at the standard textbook definition, it would say any investment that is non-traditional like stocks, bonds, or cash. But I would extend that to emphasize the public versus private market distinction—one of the largest differentiating factors between traditional and alternative investments.”

Alternative investments include asset classes such as private equity, private credit, hedge funds, venture capital, and real estate, among others. Unlike publicly traded stocks and bonds, these investments are often illiquid and require extensive due diligence but can offer significant upside and risk mitigation when used effectively.

Why Alternative Investments Matter for High-Net-Worth Investors

While institutional investors, such as pensions and endowments, have leveraged alternative investments for decades, individual high-net-worth investors remain under-allocated in these assets.

“The average high-net-worth investor has only about a 5% allocation to alternative investments. Compare that to institutional investors like endowments and pensions, and you see a significant gap that presents a tremendous opportunity.”

For qualified investors, alternative investments can enhance returns, reduce volatility, and improve overall portfolio efficiency. By incorporating private market investments, investors can achieve superior after-tax, risk-adjusted returns.

Centura’s Investment Philosophy: A Four-Pillar Approach

Centura Wealth Advisory adheres to a structured approach based on four time-tested investment principles:

Portfolio Optimization – Minimizing drawdowns and maximizing return through strategic diversification.
Institutional Asset Allocation – Implementing an endowment-style approach to increase alternative investment exposure.
Tax Efficiency & Asset Location Optimization – Structuring investments for the best after-tax outcomes.
Market Efficiency Optimization – Leveraging active management in inefficient markets while utilizing passive strategies for efficient markets.

The Role of Alternative Investments in a Diversified Portfolio

“Alternatives tend to have little to no—or even negative—correlation to traditional stocks and bonds. This can generate significant alpha while lowering overall portfolio risk.”

Centura employs a core-satellite strategy when incorporating alternatives.

Core: Stable, lower-risk assets like leveraged buyouts (LBOs) and core-plus real estate.
Satellite: Higher-risk, higher-return strategies like venture capital, CLOs (collateralized loan obligations), and niche private credit opportunities.

This structure allows investors to capture upside while mitigating risk through diversification and strategic allocation.

Overcoming the Challenges of Alternative Investments

Despite the advantages, alternative investments come with unique risks, such as illiquidity and lack of transparency.

“At Centura, we conduct an institutional-level due diligence process to uncover and mitigate risks. Our goal is to ensure we select the best opportunities for our clients.”

Centura’s five-stage due diligence process includes:

Identifying the Right Investment Criteria – Refining search parameters to narrow down viable opportunities.
Sourcing – Utilizing proprietary research, industry contacts, and platforms like PitchBook.
Initial Investment Screening – Conducting manager interviews, reviewing strategy alignment, and ensuring interests are aligned.
Full Due Diligence – Performing deep dives into fund structure, financials, legal contracts, reference checks, and operational risks.
Ongoing Monitoring – Engaging in regular manager meetings and performance reviews to ensure continued alignment with investment goals.

Where Centura Adds Value

Centura differentiates itself from large RIAs, wirehouses, and private banks by offering access to boutique, high-quality asset managers. Many large financial institutions are limited to well-known firms like Blackstone or KKR due to scale requirements. Centura’s independent approach allows access to both industry giants and smaller, high-performing niche managers.

Additionally, Centura actively negotiates favorable economic terms on behalf of its clients, including:

Lower management fees and carried interest
Elimination of performance “catch-up” provisions
Minimum investment reductions for accessibility
Most Favored Nations clauses ensuring clients receive the best available terms

“When we negotiate, it’s not just about reducing fees—it’s about optimizing return structures and securing the best possible terms for our clients. That’s where we add significant value.”

Final Thoughts

Alternative investments are powerful tools for wealth optimization, but they require careful selection and expert oversight. Through rigorous due diligence, strategic portfolio construction, and a focus on tax efficiency, Centura Wealth Advisory helps investors unlock the full potential of alternative investments.

For more information on alternative investments and how they can enhance your portfolio, contact Chris Osmond, CFA, CAIA®, CFP®, at Centura Wealth Advisory.

LinkedIn: Chris Osmond

DISCLAIMER:

The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Centura Wealth Advisory. The content has been made available for informational and educational purposes only. The content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.

Centura Wealth Advisory is an SEC-registered Investment Advisor with its principal place of business in San Diego, California. Centura and its representatives are in compliance with the current registration and notice filing requirements imposed on SEC-registered investment advisors in which Centura maintains clients. Centura may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Past performance is no guarantee of future results. Tax relief varies based on clients’ circumstances, and all clients do not achieve the same results.