10th October 2022
Today with the current fast-shifting market settings, it has become crucially necessary for investors to have a determined strategy for seizing chances to increase returns while simultaneously managing their portfolio volatility effectively. An increasingly popular strategy to lower portfolio volatility is to use alternative assets. Alternative investments are not standard investments, such as stocks, bonds, and cash. While this asset class includes a variety of investment kinds, each with its investment strategy, risk profile, and possible rewards, most alternatives share key characteristics; namely, these assets are relatively illiquid, i.e., due to their extended time horizons and the sheer complexity of selling the assets, they are difficult to sell or convert into cash.
Alternative investment options use leverage to boost returns and rely on investing talent rather than market exposure to build value to meet their final performance goals. Some of the asset classes that are included in the Alternative investments are:
- Private Equity: It refers to financial investments in private enterprises that are not traded publicly at any stock exchange. An individual can invest in private equity through venture capital, growth equity, and buyouts.
- Private Debt: Under private debt, private investors/markets provide loans, not commercial banks (i.e., a bank loan). Most institutional investors invest in private debt through unlisted private debt funds. The strategies can be direct lending or fund of funds, mezzanine, special situations, and distressed debt.
- Real Estate: Over the last 50 years, private real estate has become one of the world’s most valuable asset classes. This consists of real estate investment and ownership. It includes residential housing, commercial real estate, land for development purposes, offices, retail, etc.
- Commodities: This strategy refers to investment in raw materials and agricultural products such as gold, oil, and coffee. Trading that takes place over-the-counter (OTC) or off-exchange is done directly between two parties without the involvement of an exchange.
In conclusion, it can be said that these investments have presented various additional methods of funding with a variety of goals and ways for investors to participate in portfolio companies. Hence, if any person is looking to maximize one’s wealth, alternative investments would be a great avenue to invest in.
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