If you’re a high net worth investor, you’re probably always on the lookout for new opportunities to grow your wealth and keeping an eye out for the latest investment trends. So undoubtedly, those in the know, have come across alternative investment opportunities.
In recent years, there has been an increased interest in alternative assets and alternative investment funds. While many high net worth investors are still largely unaware of these options, those who are familiar with them often see them as an appealing way to diversify their portfolios and hedge against market volatility. So, what exactly are alternative assets, and why is there such a growing interest in them?
What Are Alternative Assets?
Alternative assets are any asset that falls outside the traditional categories of stocks, bonds, and cash. Common examples of alternative assets include real estate, private equity, hedge funds, and venture capital. Alternative assets can offer a number of advantages to investors. For example, they tend to be less affected by market volatility than traditional assets, and they can provide access to investments that would be otherwise unavailable to individual investors.
What Are Alternative Investment Funds?
An alternative investment fund is a type of investment vehicle that allows investors to pool their money together to invest in alternative assets. Alternative investment funds are managed by professional managers who make decisions about which assets to buy and sell.
Why have institutions got such a high exposure to Alternatives?
- Diversification – One of the primary reasons investors are interested in alternative investments is for the purpose of diversification. Adding alternatives to a portfolio that’s primarily made up of stocks and bonds can help reduce overall risk, while still providing the potential for growth. For example, let’s say you have a portfolio that’s invested 60% in stocks and 40% in bonds. Adding an alternative investment that has low correlation to stocks and bonds can help reduce your portfolio’s volatility while still providing upside potential. This is as relevant for high net worth investors as it is institutions.
- Uncorrelated Returns – Another reason investors like alternative investments is because they often provide uncorrelated returns. This means that when stock prices are going down, the prices of some alternative assets may be going up (and vice versa). This lack of correlation can help smooth out the ups and downs of your portfolio, providing more predictable returns over time.
- Higher Potential Returns – While there’s never a guarantee that any investment will make money, alternative investments have the potential to provide higher returns than more traditional asset classes like stocks and bonds. And for high net worth investors who are willing to take on a little more risk, these higher potential returns can be very attractive.
Why Are Alternative Assets & Investment Funds Gaining Popularity with High Net Worth Investors?
There are a number of reasons why alternative assets and investment funds are gaining popularity among high net worth investors. First, as we already mentioned, alternative assets tend to be less volatile than traditional assets such as stocks and bonds. This can help high net worth investors protect their portfolios from market swings.
Another reason why alternative assets are gaining popularity is that they offer the potential for higher returns than traditional assets. For example, according to data from Preqin, the average annual return for venture capital between 2000 and 2016 was 12%. That’s more than double the annual return of the S&P 500 over the same time period! Of course, it’s important to remember that higher returns come with higher risks — so it’s important to carefully consider whether an alternative asset or investment fund is right for you before investing any money.
When it comes to investing, there is no “one size fits all” approach. What works for one high net worth investor may not be suitable for another. However, if you’re looking for potential higher returns and greater diversification for your portfolio, alternative assets may be worth considering.
We hope this article has helped you better understand what alternative assets and investment funds are and why they might be right for you. For more information about alternative asset investment opportunities go to the AssetTribe website. If you are still unsure it is often best to consult with a financial advisor before making any decisions about investing your money.