Escala doubles-down on alternatives

Escala Partners, one of Australia’s leading private wealth investment and advisory groups, is strengthening its commitment to alternative investments.

As an asset class, alternative investments has demonstrated the ability to enhance returns, reduce volatility and offer meaningful portfolio diversification for clients. There’s not much to dislike in that set of attributes, according to wealth management advisory business Escala Partners.

According to Stephen Dickinson (pictured), alternatives investment analyst at Escala, the firm has seen a significant uptick in its alternative investment allocation, driven by structural changes in capital markets and evolving investor preferences.

“As the range of private market strategies continue to expand, we see this factor as fertile ground for diversifying our client portfolios,” says Dickinson.

Escala’s alternatives allocation, measured across its approved product list (APL) by funds under management, has jumped from approximately 14 per cent to 35 per cent in just over three years. Dickinson attributes this surge to a combination of factors including illiquidity premiums, market structure evolution and the growing sophistication of private wealth investors.

“We see alternatives not just as a complement, but as a core part of a diversified portfolio,” he notes. “As long as clients can accommodate the illiquidity, the potential for superior risk-adjusted returns is significant.”

Private equity, private credit, venture capital, infrastructure, property, and royalties form the backbone of Escala’s alternatives suite. Hedge funds also play a role, although they tend to operate within public markets. Meanwhile, newer entrants such as digital assets, art and collectibles are gaining traction with clients as well.

“Including private assets in our portfolio mix expands the investable universe,” says Dickinson. “It gives investors access to a broader range of sectors, geographies and companies, many of which aren’t available in public markets.”

He also highlights that returns from private markets generally exhibit low correlation to listed assets, providing crucial downside protection during public market drawdowns. Additionally, selected alternative asset classes such as real assets and digital infrastructure can serve as effective inflation hedges.

“We have observed an increasing demand for global diversification, with our clients seeking access to sophisticated overseas private-market strategies. Evergreen fund structures offering continual capital raising without fixed term limits have resonated particularly well with our clients seeking smoother deployment and redemption mechanics.”

Dickinson says that while private markets are often perceived as higher risk due to illiquidity, Escala’s disciplined and diversified approach helps mitigate this. “We don’t view these as risky investments per se,” he says. “The key is matching them to the client’s liquidity needs and investment horizon.”

Allocations are typically diversified across geographies and sectors, with a strong emphasis on quality assets and seasoned investment managers.

“Ultimately, our approach is about being strategic to deliver superior returns to our clients. Private markets offer tremendous opportunity, but the key is thoughtful portfolio construction and alignment with our clients’ long-term wealth-building goals,” concludes Dickinson.