Defining Alternative Investments
Alternative investments are generally defined as anything other than a traditional stock or bond. They are investments not traded on an exchange or in the public markets. You may have heard them referred to as the private markets.
The Primary Asset Classes
The primary asset classes are private equity, private credit, and real assets. These asset classes are separate from the actual investment structures, types, or vehicles and should be thought of as broader investment categories.
Private equity investments offer the potential for return and involve financing provided to non-public companies to facilitate positive change and/or maximize business growth.
Private credit investments offer the potential for income and involve fixed-income instruments that are privately negotiated.
Real assets offer the potential for diversification and inflation protection and involve tangible, physical assets whose value is derived from their physical use (e.g., real estate, natural resources, and infrastructure). They may also be a source of return or income generation.
Investment Strategy Example
• Hedge funds represent a diverse group of strategies, each serving a different role in client portfolios.
• Hedge funds offer greater flexibility in the number of underlying investments (equity, fixed income, commodities, currencies, options, and futures), and the managers have the ability to be long and short segments of the market.
Alternative sources of return, income, and diversification.
Generally less correlated to traditional markets, which may mean they can experience less volatility and lower the overall risk profile of a portfolio.
Historically only available to institutional investors, but now more accessible given product innovation and regulatory changes.
KEY RISK CONSIDERATIONS
Key risk considerations may include, but are not limited to, the following:
Transparency: Alternative investments may not offer the same level of transparency as traditional investments, which are required to provide frequent and full disclosures.
Liquidity: Alternative investments should be considered longer term investments. Depending upon the strategy, investors may be subject to a lockup period which will prevent them from redeeming their capital for an extended time (e.g., 5—10 years).
Fees: Alternative investment fees are generally higher than those associated with traditional investments.
Leverage: Alternative investment strategies may use some form of leverage, which offers the potential for higher returns, but also increases the downside risk.
Concentration: Alternative investment strategies may be highly concentrated in a few funds or holdings.
This material is provided for informational purposes only and is not intended as, and may not be relied on in any manner as legal, tax or investment advice, a recommendation, or as an offer to sell, a solicitation of an offer to purchase or a recommendation of any interest in any fund or security offered by Institutional Capital Network, Inc., or its affiliates (together “iCapital”).
Past performance is not indicative of future results. Alternative investments are complex, speculative investment vehicles and are not suitable for all investors. An investment in an alternative investment entails a high degree of risk and no assurance can be given that any alternative investment fund’s investment objectives will be achieved or that investors will receive a return of their capital. The information contained herein is subject to change and is also incomplete. This industry information and its importance is an opinion only and should not be relied upon as the only important information available. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed, and iCapital assumes no liability for the information provided.
Products offered by iCapital are typically private placements that are sold only to qualified clients of iCapital through transactions that are exempt from registration under the Securities Act of 1933 pursuant to Rule 506(b) of Regulation D promulgated thereunder (“Private Placements”). An investment in any product issued pursuant to a Private Placement, such as the funds described, entails a high degree of risk and no assurance can be given that any alternative investment fund’s investment objectives will be achieved or that investors will receive a return of their capital. Further, such investments are not subject to the same levels of regulatory scrutiny as publicly listed investments, and as a result, investors may have access to significantly less information than they can access with respect to publicly listed investments. Prospective investors should also note that investments in the products described involve long lockups and do not provide investors with liquidity.
Securities may be offered through iCapital Securities, LLC, or Axio Financial LLC, each of which is a registered broker dealer, member of FINRA and SIPC and subsidiary of Institutional Capital Network, Inc. (d/b/a iCapital Network). These registrations and memberships in no way imply that the SEC, FINRA or SIPC have endorsed the entities, products or services discussed herein. iCapital and iCapital Network are registered trademarks of Institutional Capital Network, Inc. Additional information is available upon request.
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