The Case for Alternative Investments
Alternative investments provide access to investment opportunities generally not available in a traditional stock/bond portfolio allocation. With enhanced return and income potential, and a wide array of diversified strategies, alternative investments can be a valuable addition to a portfolio. They can also be highly effective when the markets are experiencing greater volatility, higher inflation, and increased correlations between traditional assets.
What Can Alternative Investments Offer?
ENHANCED RETURN AND INCOME POTENTIAL
Alternative investments have historically delivered higher returns and income than traditional equity and fixed income investments.1
BROADER DIVERSIFICATION AND LOWER CORRELATION
Alternative investments span multiple asset classes and investment strategies, helping to dampen volatility, increase diversification, and lower correlation in a portfolio.
LARGER
OPPORTUNITY SET
Alternative investments offer exposure to an array of unique investment opportunities away from long-only, publicly traded stocks and bonds.2
Using Alternative Investments in a Portfolio
Private Equity – Potential for higher returns
Private Credit – Alternative source of income
Hedge Funds – Portfolio diversification
Real Assets – Income and inflation protection
BENEFITS
Alternative investments may help investors achieve their long-term investment goals and objectives and serve as an attractive complement to traditional stock/bond allocations.
Alternative investments do not represent a single solution, but a diverse set of strategies that can fulfill multiple roles in a client’s portfolio.
Alternative investments are versatile tools for building diversified portfolios.
Technology and product innovation have made it easier for investors to access these investments.
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.
1. Source: iCapital, based on quarterly index data from Preqin, Cliffwater, MSCI, Bloomberg, NCREIF, and HFRI, as of Sept. 30, 2023. For illustrative purposes only. Past performance is not indicative of future results. Future results are not guaranteed. See Trading Places: Mapping the Impact of Alts in a Traditional Portfolio for more information.
2. There are only 2,800 public companies with annual revenues greater than $100 million. That’s a small slice of corporate America, where there are 19,000 private businesses of that size. Source: Hamilton Lane, Capital IQ as of February 2023. For illustrative purposes only. Past performance is not indicative of future results. Future results are not guaranteed.
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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The information contained herein is an opinion only, as of the date indicated, and should not be relied upon as the only important information available. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance. The information contained herein is subject to change, incomplete, and may include information and/or data obtained from third party sources that iCapital believes, but does not guarantee, to be accurate. iCapital considers this third-party data reliable, but does not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. iCapital makes no representation as to the accuracy or completeness of this material and accepts no liability for losses arising from the use of the material presented. No representation or warranty is made by iCapital as to the reasonableness or completeness of such forward-looking statements or to any other financial information contained herein.
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