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
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
Private credit investments offer the potential for income and involve fixed-income instruments that are privately negotiated.
Real Assets
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
• 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.
BENEFITS
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.
Please contact your financial professional or a fund manager to learn more.
IMPORTANT INFORMATION
The material herein has been provided to you for informational purposes only by Institutional Capital Network, Inc. (“iCapital Network”) or one of its affiliates (iCapital Network together with its affiliates, “iCapital”). This material is the property of iCapital and may not be shared without the written permission of iCapital. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of iCapital.
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 or solicitation to buy or sell any security, financial product or instrument, or otherwise to participate in any particular trading strategy. This material does not intend to address the financial objectives, situation, or specific needs of any individual investor. You should consult your personal accounting, tax and legal advisors to understand the implications of any investment specific to your personal financial situation.
ALTERNATIVE INVESTMENTS ARE CONSIDERED COMPLEX PRODUCTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. Prospective investors should be aware that an investment in an alternative investment is speculative and involves a high degree of risk. Alternative Investments often engage in leveraging and other speculative investment practices that may increase the risk of investment loss; can be highly illiquid; may not be required to provide periodic pricing or valuation information to investors; may involve complex tax structures and delays in distributing important tax information; are not subject to the same regulatory requirements as mutual funds; and often charge high fees. There is no guarantee that an alternative investment will implement its investment strategy and/or achieve its objectives, generate profits, or avoid loss. An investment should only be considered by sophisticated investors who can afford to lose all or a substantial amount of their investment.
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