Alternative investments have become an increasingly significant part of how sophisticated portfolios are constructed — and Toby Watson’s background gives him a grounded perspective on what they can and cannot offer.
For many investors, alternative investments remain something of a black box — present in the portfolios of the very wealthy, but poorly understood by most. The challenge is not just in accessing these strategies, but in understanding how they fit alongside more conventional investments. Toby Watson, whose career at Goldman Sachs included extensive work in structured credit and hard asset lending, brings a practical rather than theoretical understanding of alternatives to his role as a partner at Rampart Capital.
Alternative investments — a broad category that includes everything from hedge funds and private credit to infrastructure and real assets — have grown considerably in prominence over the past two decades. Once the preserve of large institutional investors, they are now an increasingly common feature of portfolios managed for high-net-worth individuals and families. Understanding what they actually are, how they behave, and what role they can play in a portfolio requires a level of familiarity that goes beyond the headlines. Toby Watson’s years in structured finance offer a useful vantage point from which to consider five key aspects of alternative investing worth understanding.
Understanding Alternatives: Why Toby Watson’s Experience Is Relevant
The term “alternative investments” covers a wide and varied landscape. What these strategies tend to have in common is that they sit outside the conventional categories of listed equities and government bonds — and that they often behave differently from those asset classes, particularly during periods of market stress. Toby Watson, a former partner at Goldman Sachs who now works as a partner at Rampart Capital, spent much of his career working with exactly these kinds of instruments, which gives him a practical frame of reference that is relatively uncommon.
1. Alternatives Are Not a Single Category
One of the most common misconceptions about alternative investments is that they form a coherent group. In practice, the differences between a hedge fund pursuing a macro strategy and a private credit vehicle lending against hard assets are enormous — in terms of liquidity, risk profile, return drivers, and the level of expertise required to evaluate them properly. Toby Watson’s background in structured credit and hard asset lending gives him direct experience of some of the more complex corners of this space.
The Importance of Looking Beneath the Label
Describing something as an “alternative investment” says very little about what it actually does. Understanding the underlying mechanics — how returns are generated, where the risks lie, and under what conditions the strategy tends to perform — requires a more granular level of analysis.
2. Liquidity Is a Critical Consideration
Many alternative strategies involve accepting lower liquidity in exchange for the potential for higher or less correlated returns. That trade-off is not inherently problematic, but it needs to be understood clearly before any commitment is made. For Toby Watson, whose work in structured finance frequently involved instruments with specific liquidity profiles, assessing and managing liquidity risk is a well-practised discipline.
3. Correlation to Conventional Markets Matters More Than It Might Seem
One of the key reasons alternatives are included in diversified portfolios is the expectation that they will behave differently from listed equities and bonds — particularly during periods of market stress. For Toby Watson, whose structured finance work regularly involved instruments with specific correlation profiles, understanding those dynamics is not abstract. In practice, the degree of correlation varies considerably across different strategies and market conditions. Some alternatives hold up well when equity markets fall; others prove less uncorrelated than expected.
When Diversification Benefits Are Real and When They Are Not
The diversification argument for alternatives is strongest when the strategy’s return drivers are genuinely independent of broader market sentiment. When that independence breaks down — as it sometimes does during periods of acute stress — the expected benefits can be harder to realise.
4. Due Diligence in Alternatives Requires Specific Expertise
Evaluating an alternative investment strategy is considerably more demanding than assessing a listed equity or a government bond. The structures are often more complex, the track records shorter or less comparable, and the underlying assets harder to value. Toby Watson’s years at Goldman Sachs — working with structured products across multiple asset classes — gave him direct experience of the kind of detailed analysis that proper due diligence in this space requires. Some of the areas that warrant particular attention include:
- The quality and independence of valuation processes
- The alignment of interests between manager and investor
- Liquidity terms and the conditions under which they may change
5. Alternatives Work Best as Part of a Broader Framework
Perhaps the most important consideration of all is that alternative investments are most useful when they are incorporated into a coherent overall framework, rather than added opportunistically. For Toby Watson, whose work as a partner at Rampart Capital involves thinking carefully about how different strategies interact within a portfolio, that principle of purposeful construction is central to how alternatives are approached.
