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It is well known that allocating to alternative assets, from private equity to private credit, can be a sound portfolio strategy, offering diversification and uncorrelated return potential. Endowments, the world’s leading institutions, allocate upwards of 40% of their portfolios to alternatives1. However, investing in alternatives directly has several disadvantages, chief among which is illiquidity. There is an alternative – allocating to the equity of alternative managers via, for example, the Tema Alternative Asset Managers ETF (AAUM).
Comparing a Private Fund Investment Program to the AAUM ETF
*Gross Expense Ratio is 0.99%. Contractual expense cap for net expense ratio of 0.75% is in effect through 03/31/2027.
To properly run an alternatives program an investor, a limited partner (LP), would need substantial capital (due to minimums) to diversify across asset classes (e.g. private equity or private credit), manager (KKR or Blackstone), and vintage (when the fund is deployed).
Owning a single fund exposes investors to a lot of risk. In contrast, a portfolio of alternative manager equity, via an ETF for instance, potentially provides flexibility and diversification across manager, vintage, underlying asset class.
Owning equity in the manager also potentially offers greater alignment and allows investors to benefit both from fund returns and flows.
Most importantly, an alternatives program is highly illiquid; with most funds committed for periods of 10 or more years. Though there is growth in secondaries, offering liquidity to LPs, these often come with big discounts and aren’t always available. In contrast, listed alternative manager equity is highly liquid. For example, the simple average ADV (average daily value traded) of the AAUM portfolio is $331m – providing ample room to consider a potential investment in and out of this portfolio1.
Note: Investors should also consider the implications of taxes and other expenses, as they evaluate a single alternatives fund versus an alternative asset managers ETF.
Alternative Listed Manager Equity Has Historically Outperformed LP Indices
Tema’s analysis suggest that an equal weighted portfolio of listed alternative managers held for a typical 10-year period, has historically outperformed the Cambridge Associates Index IRR for both Private Credit and Private Equity, across all matured vintages since 2010. For the complete methodology of our Alternative Asset Managers ETF (AAUM), view the fund prospectus.
Listed Alternative Managers Outperformed LP Over Multiple Vintages
Source: Cambridge Associates and Bloomberg as of 31-October-2024.For Cambridge Associates, vintage year is defined as the legal inception date as noted in a fund’s financial statement. This date can usually be found in the first note to the audited financial statements and is prior to the first close or capital call. The Cambridge Associates index are based on data of pooled returns of the underlying funds and are net of fees, expenses, and carried interest. For the Equally weighted listed managers basket, the vintage year represents the starting date of the performance period which is January 1 or the first trading date of the vintage year. We assume a holding period of 10 years, which is the typical life of a private equity fund, from the start date or to the end of the sample data period (e.g., 1/1/2010 to 12/31/2019, 1/1/2020 to 10/31/2024). The Equally weighted listed manager basket is reconstituted (to include any new listings that year) and rebalanced 1st of January of each year to equally weighted positions. These returns do not reflect any fees or tax impacts.
Bottom Line
Adding individual alternatives may be an attractive portfolio strategy, however, potentially considering a portfolio of alternative asset manager equity may potentially provide additional liquidity opportunities compared to a single fund.
For more of our research and recent insights on Alternatives and more, view and subscribe to our insights.
Disclosures
Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and additional information can be
found in the Fund’s prospectus or summary prospectus, which may be obtained by visiting www.temaetfs.com/aaum. Read the prospectus carefully before investing.
Sector Focus Risk: The Fund may invest a significant portion of its assets in one or more sectors and thus will be more susceptible to the risks affecting those sectors. The Fund anticipates that it may be subject to some or all of the risks described below.
Financial Sector Risk: Financial services companies are subject to extensive governmental regulation, which may limit both the amounts and types of loans and other financial commitments they can make, the interest rates and fees they can charge, the scope of their activities, the prices they can charge and the amount of capital they must maintain. Profitability is largely dependent on the availability and cost of capital funds and can fluctuate significantly when interest rates change or due to increased competition. In addition, deterioration of the credit markets generally may cause an adverse impact in a broad range of markets, including U.S. and international credit and interbank money markets generally, thereby affecting a wide range of financial institutions and markets.
Investing in Foreign and emerging markets involves risks relating to political, economic, or regulatory conditions not associated with investments in U.S. securities and instruments. In addition, the fund is exposed to currency risk.
