Allium Financial Advisors of Lake Oswego, Ore., has appointed alternative assets specialist Scott Thompson to the position of chief investment officer (CIO), the company announced.
Thompson has 25 years of experience in alternative investments from his previous roles as a partner, portfolio manager and CIO at Common Sense Investment Management and Concentric Wealth Advisors. In his new role with Allium, Thompson will lead the firm’s investment committee as well as its investment research, portfolio management and client relations operations.
“Scott will elevate our depth of expertise and create an opportunity for our firm on the investment side of our business,” Allium CEO Sheree Demers Arntson said in a prepared statement. “He will also help us further refine our portfolio management process and make our portfolios even better.”
About one-third of Allium’s investments are in institutional-quality alternative investments, the firm says. The company said that Thompson would leverage his expertise in asset classes such as hedge funds, private equity, private debt and real estate to strengthen its existing investment resources.
“Using institutional-quality alternative investments for accredited non-profits is not done often because a lot of work must be put into finding the right opportunities for these organizations,” Thompson said in the news release. “But at Allium, we know that these investments present a great opportunity to potentially reduce risk by lowering volatility. They present a worthwhile opportunity for our clients to diversify and fortify their portfolios.”
In an email, Thompson said, “Alternative assets run the gamut from very safe to very risky. At Allium, we incorporate alternatives into client portfolios to first reduce overall portfolio volatility and, second, to enhance potential returns. We feel that the best [way] to compound our clients’ capital over time is to strive to never take a large loss and to grow [their wealth] responsibly.”
Thompson said that leverage was a common characteristic in alternatives that could increase investment risk.
“Some forms of leverage are prudent and advisable, such as a mortgage on your home, while other forms are not,” he said in the email. “Irresponsible use of leverage can be the quickest way to permanently lose capital. [But] some strategies, such as a beta-neutral arbitrage strategy, use a prudent amount of leverage to reduce risk of the overall portfolio.”
A market-neutral fund is a hedge fund that seeks a profit regardless of an upward or downward market environment, typically through the use of paired long and short positions or derivatives. These funds can potentially serve to mitigate market risk as they seek to generate positive returns in all market environments.
Another common hedge fund strategy, beta neutral portfolios, generate a profit without being exposed to market risk.
Asked how he felt about clients investing their wealth in non-fungible tokens (NFTs), he said, “Every client is unique with different interests and risk tolerances. As a firm, we do not advise [that] our clients [invest] in NFTs. However, we do provide flexibility in client portfolios for more risky/speculative investments. So, if a client has an interest in NFTs, we work with the client to determine an appropriate allocation.”
He said he considers NFTs highly risky.
“Time will tell if NFTs are an expanding asset class or a fad,” Thompson said in the email. “There can be a lot of money made and a lot of money lost while investors decide. With this sort of speculative investment, our penchant is for clients to explore investing with the service providers to the industry.”
Thompson compared an investment in NFTs to Western gold miners’ nascent investment in Levi Strauss & Co. jeans as their working attire of choice back in 1873.
“Levi Strauss had a thriving business then, and still does today,” he said in the email.
Asked if it was less risky and more profitable to invest in the stock of a company that produces collectibles than it is to invest in the collectibles themselves, Thompson said it depends on the circumstances.
“At first blush, an investor would typically deduce that investing in the company would be a lower risk, lower potential reward option versus investing directly in the company’s product,” he said. “Theoretically, the company would have a portfolio of products such that some are big winners, while others are losers.”
Thompson said that he had read a report stating that 95% of new products fail. However, the 5% of products that succeed can make up for the investment failures multiple times over.
“So, if you choose to invest in specific products, you could be taking on the risk that you choose the winners over the losers,” he said. “Just like accurately calling heads or tails, it may work for a while, but without a durable competitive advantage, it's hard to do over long periods of time. In addition, if your hobby entails buying depreciating assets [such as new cars], from a purely economic standpoint, it might make sense to invest in the company that produces the car.”
As an example, Thompson said his father owns a 1962 Chevrolet Corvette, which is a highly collectible classic car. Had he bought it new, Thompson said, it would have cost around $4,000 back in 1962—roughly $39,000 in 2022 dollars. According to the Hemmings price guide, however, the average asking price today for a 1962 Corvette is $81,258.
“So it would have taken him 60 years to double his money,” Thompson said. “Not the best investment in terms of economics, but from an enjoyment perspective, the best investment he’s ever made. That said, there are situations where it may be economically more advantageous for an investor to invest in the particular commodity. … [But] some collectibles are very rare and oftentimes the marketplace for these items is highly inefficient.”
Thompson said that Allium currently allocates up to 30% of a client’s portfolio assets to institutional quality credit and equity alternatives in order to increase risk-adjusted returns.
“Allium uses multimanager strategies as a core for clients’ alternative investment portfolios, then adds unique individual-manager funds to gain exposure to specific assets classes,” he said. “Given my 25 years of experience finding, diligencing and investing with individual managers, I plan to expand this area of Allium’s offerings. This includes more equity alternative managers seeking to outperform equity markets over full market cycles. The goal is to provide our advisors multiple options that can potentially reduce risk, enhance returns and most precisely meet the needs of each client.”
Thompson said that over the next 12 months he plans to expand the company’s small and midsize endowment and foundation business.
“We find that institutions with less than $25 million in assets are typically underserved in the investment industry,” he said. “We bring institutional quality investment options and portfolio management [to those clients] that is more commonly available only to institutions with $100 million-plus in assets.”
Thompson said that for high-net-worth clients, Allium serves as a multifamily office that provides a full range of services, from financial planning to investment management to tax consultation and preparation.
“That said, there is [also] a group of high-net-worth individuals and families that are satisfied with their existing traditional investment advisor, but are looking to expand their portfolio options to include alternatives. We would like to be the go-to firm to help them achieve their goals,” he said.
Founded in 2016, Allium Financial works with families, individuals, business owners, endowments, foundations, and retirement plan sponsors. As of December 31, 2021, Allium Financial reported on its website managing about $425 million in assets for 583 accounts.
