Thursday 5th March 2026
Why liquid alternatives are becoming a core portfolio building block
Liquid alternatives can diversify portfolios while preserving liquidity. Mishan Dahia of Atchison says advisers must focus on the role each strategy plays in overall portfolio construction.
Liquid alternatives are increasingly being positioned as a bridge between traditional portfolios and private markets. Advisers have spent the past two years debating allocations to private credit, infrastructure and private equity. Mishan Dahia argues that the real question is how these exposures work together within a portfolio.
Dahia is an investment analyst at Atchison. He believes the conversation should shift from individual assets to portfolio construction. Many alternatives are assessed in isolation rather than as part of a broader framework. “We’ve heard a lot about private credit, private infrastructure and private equity,” Dahia said. “They’re all good as standalone investments, but fundamentally we want to know how they perform in totality.”
For advisers building diversified portfolios, access and liquidity matter as much as asset selection. The functional role of each strategy is also critical. Dahia divides the alternatives universe into several structural approaches. Each reflects a different way advisers integrate alternatives alongside equities and bonds.
Structuring alternatives within portfolios
Advisers tend to follow several structural models when incorporating alternatives. Some treat them as a single allocation alongside equities and fixed income. Others divide portfolios into growth and defensive sleeves that include alternative exposures.
More sophisticated structures separate alternatives by liquidity. Liquid strategies sit within the core allocation. Semi-liquid and illiquid assets, such as private equity, are deployed in satellite positions. “The main circle is representative of a liquid portfolio, while as soon as you take it outside it becomes semi-liquid or illiquid,” Dahia explains.
Atchison uses a hybrid approach. The firm maintains a dedicated liquid alternatives sleeve, which can be combined with traditional multi-asset portfolios. It can also serve as a temporary allocation before capital is committed to private market strategies.
This structure gives advisers flexibility. Investors can maintain exposure to diversifying strategies while waiting for private-market opportunities. It also avoids the opportunity cost of holding large cash balances.
“Suddenly you’re in a position where you can get those uncorrelated returns to that of shares and bonds.”
Mishan Dahia, Atchison
Understanding the function of alternatives
Alternatives are often grouped together, but in reality they behave very differently in portfolios. Hedge funds, commodities, real assets and private markets each have distinct drivers.
Dahia says advisers must understand the function of each strategy. Currency strategies are influenced by macro regimes and foreign-exchange movements. Long-short equity strategies rely more on leverage and equity-market dispersion.
Even within hedge funds the variation can be significant: two strategies in the same category may produce very different correlations to equities. This makes careful categorisation essential when building diversified portfolios.
Atchison therefore segments alternatives across several categories. These include hedge funds, private markets, real assets and natural resources. Each category contains sub-strategies with different return drivers.
The objective is diversification by exposure, not simply by label. Advisers must identify what drives returns. Only then can different strategies complement rather than duplicate one another.
The case for liquid alternatives
Private markets have dominated adviser conversations in recent years. Dahia believes liquid alternatives deserve equal attention. Their appeal lies in diversification combined with liquidity and transparency.
Atchison typically accesses these strategies through fund-of-funds structures. This approach provides diversification and rebalancing flexibility. It also offers greater visibility over underlying holdings.
The firm uses quantitative analysis to monitor portfolios. Python-based models track holdings and measure risk and return metrics. This allows the team to understand how strategies interact within the portfolio.
Performance has been meaningful from a portfolio perspective. Atchison’s liquid alternatives sleeve delivered about 9 per cent over the past year, and roughly 11 per cent over two years, while maintaining a balanced growth and defensive profile.
Risk metrics are also notable. As of December 2025 the alternatives sleeve recorded volatility of 3.44 per cent. That is significantly lower than both international and Australian equities. It has also demonstrated lower drawdowns during periods of market stress.
For advisers navigating complex markets, Dahia believes the message is clear: alternatives should not be treated as a single category, and moreover, should not be limited to illiquid private markets.
Instead, advisers should deploy them deliberately. Structure and function must both be considered. When implemented well, liquid alternatives can provide diversification without sacrificing flexibility.
Laurence Parker-Brown is head of content at The Inside Network and managing editor of The Inside Adviser and Investor Strategy News.
