Alternative Investments

Alternative Investments are strategies that may complement your traditional equities and fixed-income investments. Alternative Investments encompass a wide range of strategies, with hedge funds, private equity, and real estate that can all serve as a vehicle to help you invest towards your goals.  Alternative Investments often employ more sophisticated strategies, such as hedging, leverage and investment concentration.

While Alternative Investments span a wide range of investments, the three most common are:

• Hedge funds that engage in a wide range of investments and trading strategies , such as equity long/short strategies and derivative instruments.
• Private equity that capitalizes on periods of rapid growth or restructuring by investing in private and certain public companies during various phases of their lifecycle while also offering assistance in improving the operations of the companies they invest in therefore creating even more value for investors.
• Real asset strategies that comprise both actively and passively managed investments in precious metals, commodities, real estate, infrastructure, agricultural land and natural resources.

Alternative Investment management is a set of investment techniques, including portfolio hedging, investment concentration and leverage that are not normally found in traditional investment strategies.  Employing these techniques allows Alternative Investment managers to potentially increase returns without necessarily increasing expected volatility.

A careful evaluation of your current finances, your tolerance for risk, your liquidity needs and your overall investment objectives can help you determine whether or not Alternative Investments are appropriate for you.  Alternative Investments can help investors diversify their holdings, can offer downside protection and may offer higher return potential, but also often come with higher risk, are illiquid or have other risks that must be carefully evaluated.  Talking to a professional advisor is one of the best ways to determine if Alternative Investments are right for you.

You can tap a wide range of resources to learn about the basics of Alternative Investments.  However, to understand if they are appropriate for you and how they may fit into your larger investment strategy, it is best to consult a professional advisor.  A professional advisor can offer you insights, including access to market perspectives, investment strategy and implementation processes as well as guidance on if Alternative Investments are right for your situation.

Real estate strategies are one of the common types of Alternative Investments. Distinct from the real estate you may own directly, such as your home or a vacation property, real estate investments are generally pooled investments in commercial or residential real estate, infrastructure, and agricultural land that has been bundled into an investment vehicle and offered to a wide range of investors. 

Alternative Investments can serve as a complement to your traditional investments, like publicly traded stocks and bonds.  Alternative Investments can benefit your investment portfolio by potentially:

• Decreasing volatility: Defensive Alternative Investment strategies may generate lower volatility and drawdowns than many traditional assets. They help mitigate downside risk in different market environments and may offer income.
• Diversifying and managing risk: Diversifying Alternative Investment strategies generally have a low correlation to traditional equity and bond investments. They may help manage risk and also limit the impact of inflation.
• Enhance returns: Alternative Investment growth strategies may decline less in bear markets while potentially capturing significant upside in bull markets. They may employ value-added approaches using public and private equities, credit and other instruments.

Because Alternative Investments can employ sophisticated investment strategies, they have historically demonstrated lower standard deviation than equities; have the potential to generate returns with lower correlation to traditional stock and bond markets; and seek better risk-adjusted returns through increased portfolio diversification.  They also come with elevated risks, including limited liquidity and restrictions on the timing of withdrawals; reduced transparency relative to other managed portfolios; high fees and expenses may offset fund profits; and strategies that may employ leverage, which can increase the risk of loss.

Traditional investment strategies are those that offer the ability to invest in publicly traded securities, such as stock and bonds and managed funds, like mutual funds and exchange traded funds.  While some traditional investments offer active management or leveraged strategies, there are limits to the flexibility traditional managers have in implementing their investment approach. Alternative Investment strategies have more flexibility to pursue better long-term performance by investing in a broader range of markets and securities, including less liquid assets, and by employing investment strategies and techniques typically not found in traditional investments.

You can invest in Alternative Investments in a variety of ways. Working with a professional financial advisor you can explore single Alternative Investment Funds, Funds of Funds, turn-key alternative model portfolios and non-traditional mutual funds (NTMFs).  Depending on your needs, you may also be able to invest in custom Alternative Investment portfolios or managed single investor funds.

Most investors can access some alternative investment strategies.  Non-traditional mutual funds employ alternative investment approaches and can be bought and sold by nearly all investors.  Other Alternative Investments may have specific investor qualifications, including requirements for specific levels of net worth or investable assets as well as investment experience. These requirements depend on the investment strategy and should be carefully evaluated before investing.