Alternative Markets
Investors who want exposure to alternative assets seek investments outside of the traditional markets of stocks, fixed income or cash. The goal is to create portfolio diversification and to enhance returns. Historically, some alternative investments such as private equity or venture capital have had returns above public equity markets.
Investing in alternative assets often requires buyers to lock up their money for five, maybe 10 years. During that time, investors may not see any money distributed. Liquidity is also an issue as fund managers can’t easily buy or sell holdings like managers in traditional markets, so investors can’t easily tap those assets when they want.
More and more investors are shifting to alternatives to boost returns, generate income, provide diversification from traditional investments and achieve their goals.
There are several reasons an investor or a portfolio manager is likely to consider adding alternative investments to the balance sheet. In some cases, money generated from an alternative investment might be subject to far more favorable tax treatment than that from a more traditional investment; e.g., if an investor or client has significant tax-loss carry forwards or tax credits that can be applied to a particular type of activity or source of income.
While the list of alternative investments is extensive, some of the ones you might encounter in the real world include the following:
- Equipment leasing
- Structured settlements
- Art and collectibles
- Private equity
- Wine
- Tax credit
- Hedge funds
- Real estate and all of its many derivations,
- Master limited partnerships, which can own and operate everything from oil pipelines to capital-intensive theme parks
- Tax lien certificates
- Stock or membership units in a privately held business
- Commodities, including precious metals such as gold, silver, platinum, and palladium, as well as crude oil, natural gas, ethanol, etc…
- Venture capital
- Peer-to-peer lending
- Annuities
- Mineral rights
- Intellectual property such as copyrights, song rights, patents, and trademarks
- Privately underwritten mortgages
