WhyConsistencyWins:TheCasefortheDownsideEfficiencyofAlternatives
Why
Consistency
Wins:
The
Case
for
the
Downside
Efficiency
of
Alternatives
This paper explores the limits of the Sharpe ratio, which penalizes all volatility equally, and makes the case for incorporating the Sortino ratio as a superior measure of downside efficiency. Using a 6% minimum acceptable return and a 4% risk-free rate, the analysis compares major alternative asset classes. Results show farmland, lower mid-market private equity, timberland, and private credit deliver consistently stronger downside-adjusted returns, while bonds and infrastructure fail to meet return thresholds. In today’s higher-volatility, inflation-sensitive environment, allocators can improve portfolio resilience by prioritizing strategies with superior downside efficiency without sacrificing long-term return targets.