Alternative investments: Realize the long-term benefits of this asset class

If you asked to consider investment opportunities you are likely to thing about stocks and bonds; the traditional approach to investment. This approach can and often does yield steady returns.

However, there are a host of alternatives which should be considered, diversifying and spreading your risk makes economic sense. Believe it or not, there are ways of making a profit with alternative assets. All you have to do know which investment types are worth investing in.

Private equity

In essence, any private firm which is looking for investment or financial support is likely to go to a private investor. It is now possible to put your funds with a private equity company who will pool them with other funds to lend to businesses in need.

Your return is generated by the interest charged on the loan and the initial capital is returned at a predetermined point. Private equity is available for start-ups or financing requirements at any point in a company’s development.

 

 

Direct investment

Instead of going through a private investment company, you can go direct to the businesses and start-ups which need your funds. Although this method is the same as private equity, it is a more risky proposition as you will be choosing the business yourself and many start-ups end in failure.

Private equity firms have strict criteria regarding which firms they will invest in.

Property

This is one of the most commonly known about alternative investments and one that provides reasonable returns, even in a market downturn. To invest in property you either need a large amount of capital behind you or you need to borrow to fund the purchase.

Property can then be tidied up and resold for a profit, or it can be kept and rented out. The rent should cover the cost of the loan and ongoing payments, the return is long term; once the loan is paid off or the property is sold.

Hedge funds

You may well have heard of these. They are specific funds set up to allow people to invest as much or as little as they choose. The funds are used in a variety of different investment opportunities, including equity long-short, distressed equity and arbitrage.

Capital in a hedge fund is usually invested in public equities and is more likely to make regular pay outs.

Fund of funds

These are for those who do not wish to commit to a specific type of alternative investment. Investing in this fund allows the fund manager to invest in alternative investment funds; in effect you are funding those who fund others!

The huge fund is usually split between a variety of other funds and even across a range of different asset classes.

Private placement debt

This type of investment focuses on purchasing debt from private equity firms. These private equity debts are not traded on the public market. Many smaller firms and start-ups use this type of money management to ensure they have a steady cash flow. In return you, or the firm buying on your behalf, are purchasing the debts from a business and collecting the funds.

 

 

The debt is purchased at a discount and the funds collected provide a high return percentage. This is essential to cover the high risk which comes with this type of debt.

Wine investment

Investing in fine wines such as Mouton Rothschild or Bordeaux may not be the first thing you think of when considering investment, but, it has provided returns which are statistically as good as the stock market.

Fine wine has been used as an alternative investment for many years. However, not all types are worth of an investment. Before spending any market, you must assess the market. For proper guidance, consult with a wine merchant and learn how to make sensible choices if you want your case to increase in value and reap the benefits.

The aim is to buy a premier wine which has been produced in a limited supply. You must then hold onto the wine, storing it correctly in the process, until the demand increases as supply decreases. Wine is drunk and bottles are broken; the fewer examples left the more valuable the wine is likely to be.

Tags: alternative investments, Private equity

Category: Investing