What are alternative investments?

Many wealthy investors are increasingly seeking alternative investment opportunities to further diversify their portfolio, especially during crises like the COVID-19 pandemic. Alternative investments include both financial and physical assets.

Most of these investments are illiquid and their pricing is not transparent. However, they have little correlation with traditional asset classes, making them a great way to further diversify your portfolio. Other benefits include a chance to build your wealth, tax optimization, and putting your money into something you are passionate about.

Let’s have a look at some of the most popular alternative investment types.

Hedge funds

A hedge fund is an investment company that pools investors’ money and invests those funds in a wide range of publicly available securities and derivatives in the financial markets, in order to generate a higher than average return.

Private equity

Private equity funds invest in private companies to accelerate their growth. Private equity investments can be venture capital or growth capital investments as well as buyouts.

Private debt

Financing provided to private companies by non-bank institutions. The main forms of private lending include direct lending, distressed debt, mezzanine debt (subordinated debt), real estate debt and infrastructure development debt.

Art and collectibles

These can be anything from vintage cars, expensive wine or whiskey to artwork and jewelry. Most collectibles are not very liquid, and some of them carry high storage and insurance costs. Because of this, financial experts usually recommend that investors keep only a relatively small percentage of their investment portfolio in such assets.

What else do you need to know about assets and asset classes?

If you’d like to broaden your knowledge, check out the following articles: 

  • Investment Asset Classes
  • What is an asset manager?
  • What are liquid assets?
  • What are tangible assets?
  • Are stocks liquid assets?
  • What is asset allocation?
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