Alternative Investment Opportunities Through a Slowing Economy

Howmuch should qualified investors allocate to alternatives? Based onAVS’ long-term return forecasts, there are suggested and hypothetical asset class weightings. Overall, most asset class attractiveness has improved over the last year due to market movements. However, the strategic allocationsare driven by relative estimated returns among these asset classes. All else equal, it proposes larger allocations to asset classes withhigher SREs and smaller allocations to thosewith lower SREs. Of course, not all investors have an appetite or are qualified for the risks associated withalternatives. Please see a full discussionof alternatives risks onpage 37. FIGURE 3 shows the suggested allocation for an investor at Risk Level 3 and for whomalternative and illiquidasset classes are suitable. Risk Level 3 seeks modest capital appreciationand, secondly, capital preservation. Together, hedge funds, private equity and real estate make up more than one quarter of the suggested allocationat 12%, 10% and 5%, respectively. It is important to note that this allocation remains unchanged from last year, as a consistent approach to illiquid alternatives across cycles is generally suggested. FIGURE 3 : Our Suggested Asset Class Weight ings ASSET CLASS AVS Risk Level 3 Allocation Developedmarket equities 27.4% Emergingmarket equities 4.6% Investment-gradefixed income 32.4% High-yield fixedincome 3.3% Emergingmarket fixed income 3.3% Cash 2.0% Hedge funds 12.0% Private equity 10.0% Real estate 5.0% Commodities 0.0% Source: Citi Global Wealth Investments Global Asset Allocation team The allocation shown is a US dollar Allocation at Risk Level 3, as of October 31, 2022. The allocation was updated on January 1, 2023, using data as of October 31, 2022. Risk levels are an indication of clients’ appetite for risk, ranging from 1 (the most conservative) to 5 (the most aggressive). Risk Level 3 seeks modest capital appreciation and, secondly, capital preservation. Diversification does not ensure against loss of investment. See Glossary for asset class definitions. OVERVIEW | WEALTHOUTLOOK 2023 | MID-YEAR EDITION │ ALTERNATIVE INVESTMENTS | 6