7 TYPES OF ALTERNATIVE INVESTMENT
1. Private equity
Direct investment is a broad category that refers to capital investment in private companies. There are several subgroups of direct investment such as:
- Venture capital focused on startups and young enterprises.
- Growth capital that helps more mature companies expand.
- Buyout, when a company or one of its divisions is bought directly.
2. Private debt
Private debt refers to investments that are not funded by banks or traded on the open market. The “private” part of the term is important — it refers to the investment vehicle itself, not the borrower of the debt, since both public and private companies can borrow through private debt.
Private debt is used when companies need additional capital to grow their businesses. Companies that issue capital are called private debt funds, and they usually make money in two ways: by paying interest and paying off the original loan.
3. Hedge funds
Hedge funds are investment funds that trade relatively liquid assets and use a variety of investment strategies in order to generate high returns on their investments.
Hedge funds are exclusive and only available to institutional investors such as endowments, pension funds and mutual funds, and high net worth individuals.
4. Real estate
There are many types of real assets. For example, land, forest and farmland are real assets, as is intellectual property. Real estate is the most common asset in the world.
Real estate is an interesting category as it has similar characteristics to bonds (property owners receive rent from tenants) and equity, as the goal is to increase the long-term value of the asset. This is called capital gains.
Goods are also real assets and mainly natural resources such as agricultural products, oil, natural gas, precious and industrial metals. Commodities are considered an inflation hedge because they are insensitive to equity markets. In addition, the cost of commodities rises and falls along with supply and demand – higher demand for commodities translates into higher prices and therefore higher returns for investors.
Collectibles include a wide variety of items, from rare wines to vintage cars and baseball cards. Investing in collectibles means buying and maintaining physical items in the hope that their value will increase over time.
7. Structured products
Structured products typically include fixed income markets – those in which dividends are paid to investors, such as government or corporate bonds – and derivatives or securities whose value depends on the underlying asset or group of assets, such as stocks, bonds, or market indices. Examples of structured products include credit default swaps (CDS) and secured debt obligations (CDO).
The above is for informative purposes only. Further professional advice should be sought for each particular case. Our firm does not accept any responsibility for any loss or damage occurring by acting on the basis of this information.