Anya Coverman, president and CEO of the Institute for Portfolio Alternatives (IPA), wants to create more opportunities for retail investors to effectively diversify their portfolios through the use of alternative investments. And she thinks embracing industry innovation will be key.
Coverman was promoted to her current role in September 2022, after previously serving as the IPA's senior vice president of legal and government affairs and general counsel. “This is just the beginning for a tremendous future that lies ahead for alternatives,” she says, in response to the outlook for public, non-listed REITs and the other products the IPA represents.
Coverman spoke to REIT.com about the role of alternative investments in reducing portfolio volatility, the need to extend exceptions in the Foreign Investment in Real Property Tax Act (FIRPTA), and the increased importance today of investor education.
What is the core mission of the IPA?
One of our primary goals is to educate regulators, legislators, policy influencers, and the public about the benefits of including alternative investments in a well-diversified portfolio. We want to create opportunities for retail investors to reduce their overall portfolio risk and obtain a source of income and inflation protection similar to what institutional investors can achieve. These alternative strategies, with low correlation to the equity markets, include real estate, public and private credit, and other real assets.
Why is it important to include alternative investments in defined contribution accounts and individual retirement accounts?
Alternative investments offer important investment benefits to retirement savers that are critical to building a diversified portfolio. REITs, both listed and non-listed, for example, have historically served as a reliable hedge against inflation.
These advantages can benefit many retail investors, just as they help the investment strategies of institutional investors. At the IPA, we are working closely with our coalition partners, such as Nareit, The Real Estate Roundtable, and others, to inform legislators and regulators, to educate investors, encourage smart regulation, and remove the unnecessary limitations on retail access to these opportunities.
The characteristics of many portfolio diversifying investments, like private real estate, are also a good fit for the long time horizon and lower liquidity needs of many retail retirement savers in defined contribution plans.
What are some of the risks for investing in alternatives, especially in individual retirement accounts?
Alternative investments like any investment carry various risks. For example, they typically provide more limited liquidity. But they can help investors to diversify their portfolio and reduce their overall portfolio risk. In well-managed portfolios, the amount allocated to alternative investments should be appropriate to provide this improved diversification. Retail investors should talk with a trusted financial professional about the risks associated with any product before adding it to their portfolio.
Can you talk about the “Parity for Non-Traded REITs Act” and what it could mean for investors?
As our industry evolves, our products have attracted new investors, including foreign investors. However, the taxation and regulatory burdens of the Foreign Investment in Real Property Tax Act of 1980, known as FIRPTA, remain a barrier to investments that could support the development of the U.S. real estate market.
The “Parity for Non-Traded REITs Act” aims to extend the FIRPTA exception currently available to small (i.e., no more than 10% of the REIT) foreign shareholders of publicly traded REITs to foreign shareholders of public, non-listed REITs. This would inject additional capital into the commercial real estate market supporting state and local tax revenue, job growth, and investments in workforce housing at a critical time in our economy. We were proud to work closely with Congressmen Tom Suozzi, Darin LaHood, and others in 2021 to develop this legislation to advance parity between non-listed REITs and exchange-traded REITs in the Internal Revenue Code.
This year, we are excited about building on the momentum from the last Congress, and although Congressman Souzzi has left Congress, we are pleased with the enthusiasm for this legislation among other members of Congress and its progress towards enactment in this Congress.
With the crypto/NFT markets in turmoil, how does that impact alternative investing sentiment now and going forward?
If anything, recent news around digital assets has only emphasized the importance of investor education and the role of trusted institutions. Alternative investments have been available to investors since long before crypto. For decades, other forms of alternatives tied to real assets have better enabled millions of American investors and retirement savers to secure their financial future.
We must continue to educate investors about all the available choices of innovative and customized solutions across a host of sectors and geographies that can add substantial value for investors. It is more important than ever that investors take advantage of the diversifying power of alternatives.
In addition, it is important to emphasize the critical role of trusted industry partners. As an industry, we must advance innovation and emerging technologies, while ensuring that investors are protected and understand our products. Asset managers in our industry have proven they can do just that by offering best-in-class products to investors, while still upholding investor protection, risk management, and compliance.
Are there any legislative initiatives currently afloat that will call for more strict oversight of alternative investments?
Given recent developments, regulators have a renewed focus on ensuring that they are keeping pace with emerging technology and areas of risk. Preventing another FTX-style collapse is at the forefront of every government agency’s agenda.
By contrast, Net Asset Value (NAV) REITs are highly regulated and must register their public offerings with the SEC and file annual, quarterly, and current SEC reports, as well as register in states where their securities are offered and sold. Both products are also sponsored and managed by some of the largest and most successful asset management companies in the country, and they are distributed through nationally situated wirehouses, independent broker-dealers, and registered investment advisers.
While we expect to see the regulatory perimeter expand for certain alternative investment products, we will continue to work closely with regulators, both at the national and state level, to stress the value of alternatives for appropriate diversification in certain portfolios and advocate for regulation that protects investors while enabling our industry to continue to embrace innovation and meet the financial needs of American investors.