Alternative Investments

What are alternative assets?

Alternative assets, also known as alternative investments, refer to a broad category of investments that sit outside traditional asset classes such as publicly listed equities and bonds. These assets generally have a lower correlation with public markets, meaning their performance is more dependent on the specifics of each investment rather than overall market movements.

The appeal of alternative assets lies in their ability to improve portfolio diversification, enhance returns, and provide protection against public market volatility.

A common feature of many alternative assets is illiquidity. Unlike listed securities, which can be traded daily, alternative investments often involve longer lock-in periods. For example, private equity or venture capital investments may require capital to be committed for several years. This lack of liquidity is usually compensated by the potential for higher returns, often referred to as the liquidity premium.

Types of alternative assets

Well-established categories of alternative assets include:
•    Private Equity (PE): Direct investment in private companies, typically through buyouts or growth capital.
•    Venture Capital (VC): Early-stage investment in high-growth startups, often involving hands-on support from investors.
•    Property: Investment in residential or commercial real estate, offering income and capital appreciation potential.
•    Private Debt: Direct lending to private companies, including leveraged loans, mezzanine debt, and distressed debt strategies.