Purchasing employee shares in your pre-IPO company? Pumping thousands of dollars into a mint stamp, coin or vinyl record collection? Buying bitcoin? All are examples of alternative assets. Most investor portfolios are made up of three key ingredients: equity assets like stocksfixed-income assets bondsand cash or cash equivalents, like money market funds. For example, the Great Recession hurt stockholders and bond buyers alike with dropping share prices and lower yields interest paid on new bonds.
Alternative investments can be a powerful way to diversify a portfolio, but carry much higher risks and turbulence in value. Most of the players in this speculative realm are institutional investors or the very rich. You may have heard of hedge funds, an alternative investment that often uses riskier financial instruments like derivatives to balance — or hedge — against other market risks.
Private equity — think of the angel investors who put millions into startups — is also out of reach for the average investor, unless you own employee stock options at a private company before its initial public offering. Other kinds of alternative investments include currencies through forex tradingcarbon credits, art, stamps or other collectibles that potentially rise in value over time.
Some online brokers have limited trading in alternative assets or funds linked to them. But for many alternative assets, you need to buy directly from money managers and wealth management firms. That will carry higher fees, which will vary depending on the asset. Regulations are less commonplace than in more traditional forms of investment like stocks and bonds, and the amount of public information to assess the value of the asset murkier.
Knowing the market and potential risks for any alternative asset class will likely require more homework and guesswork for the consumer. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. What are alternative assets? Buying gold or other precious metals? Why invest in alternative assets?
Common types of alternative assets Most of the players in this speculative realm are institutional investors or the very rich. Alternative assets for the common investor include: Real estate: Real estate investing is purchasing property to generate income, rather than to be used as a residence. That can be buying a property to earn rental cash or buying shares in real estate investment trusts, which invest in companies that finance or run commercial properties. Investors can purchase publicly traded REITs through an online broker.
Want to know more? See this guide on real estate investing. A drought can raise the price of corn, or a decision by the Organization of the Petroleum Exporting Countries to drill more can lower the price of oil.In order to view this website as it was intended, please switch to another browser such as Google ChromeMozilla Firefoxor Microsoft Edge. Alternatives are generally less liquid but, as a corollary, their valuations are not as susceptible to market swings.
Still, as recently as 4 years ago, some voices in the investing community were referring to REITs real estate investment trusts as alternative real estate investments.
This article takes a more focused look at alternative real estate investments: the prevailing definition, and the niche asset classes within private commercial real estate that institutional investors increasingly covet to attain further portfolio diversification.
Short answer: no. The stockholders of a REIT earn a share of the income produced through real estate investment — without actually having to go out and buy, manage or finance property.
REITs do provide some degree of de-correlation from public equities markets, but they are still susceptible to the whims of collective perception in the same way as publicly-traded stocks. By contrast, alternative assets are defined as illiquid, and traded only through private markets. This includes commercial real estate, private equity including venture capital or more novel investments like art, precious metals, or even rare sports cards. Historically such private markets have been opaque and inaccessible for most individual investors.
Online platforms such as EquityMultiple have turned this paradigm on its head. Individual investors are beginning to materially diversify into alternative assets like commercial real estateclosing the allocation gap between institutional investors and individuals albeit at a modest pace, as of this writing.
As online platforms mature and increase their scale and reach, niche asset classes within the private real estate arena have also become more accessible for individuals. While these core CRE asset classes remain the focus of industry chatter and research, a growing array of niche property types have begun commanding attention from institutional investors.
Due to some combination of growing tenant demand, demographic trends, scant competition, and emerging technologies, these niche real estate asset classes present new opportunities for yield, and in some cases a recession-resistant investment thesis.
EquityMultiple has offered alternative real estate investments into several of the more established niche CRE asset classes.
We have also provided educational material to delineate the ins and outs of each:. In addition to these niche property types, real estate investors may also refer to data storage centers, student housing, or co-living when discussing the universe of alternative real estate investments — all investment types that EquityMultiple has offered.
Before you do, please read them and check out our changes.Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which MoneyCrashers. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. Advertiser partners include American Express, Chase, U. Bank, and Barclaycard, among others. In fact, lesser-known niches often offer better returns in any market or asset class.
Conventional is boring, anyway. The first coworking space in the world debuted in San Francisco inand over the next few years, more and more spaces popped up in expensive cities like London and New York.
A small trade group opened and held the first industry conference inThe Global Coworking Unconference Conference. The industry has accelerated ever since, from being a fringe movement among solopreneurs and freelancers to becoming one of the largest trends of the decade in commercial real estate. The industry doubled from toand analysts forecast over 1 million members in the United States alone byaccording to trade group Coworking Resources. Coworking spaces are a win-win for everyone involved.
Startups can add or subtract office space flexibly. Office space providers can rent out more desks than they actually have since not all desks will be occupied all the time. Curiously, the fastest-growing customer base for coworking spaces has shifted away from freelancers and startups. According to multinational coworking giant WeWork, as reported by Curbedcorporations have led the surge in sign-ups over the last few years.
The easiest way to invest in coworking spaces is by investing in REITs that include them. These can be purchased through most investment accounts like You Invest by J. Or you could take a more hands-on approach. Alternatively, you could swing for the fences and launch your own dedicated coworking space.
The business plan is hardly elaborate: You rent office space and then sublease it by the office, desk, or shared-access lounge. As a small business owner, I work from a coworking space myself, and I love it.
The working world is changing. No midnight phone calls from tenants complaining that a light bulb burnt out; no repairs or maintenance calls.
It also costs next to nothing to maintain. If you buy raw land in cash, your only ongoing cost is property taxes — which are often low for raw land because of the relatively cheap price tag. Competition for land investing proves virtually nonexistent in many areas.
Owners of raw land earn no income from it, so they often accept pennies on the dollar. Raw land is also virtually unregulated, unlike residential rental properties, which endure immense regulation. Land investors have several strategies at their disposal.
The first is to do nothing. You can also flip land if you buy it below market pricing. One land investor I know buys land at a discount, then offers seller financing to buyers. He sells the land at a premium and charges extremely high interest rates because he can.Our Real Assets strategies seek to provide portfolio diversification and long-term value creation through investment in tangible assets.
We believe our Commodities strategies are an efficient way to gain broad commodity exposure:. We employ a broad-based rigorous fundamental and technical approach to examine the entire commodity complex with the goal of identifying the most attractive opportunities to generate return. From this approach, we identify our best ideas and employ them in our various strategies. We have the ability to trade across commodity markets using a wide variety of trading strategies and tools to capture opportunities the markets present.Real Estate, Alternative Investments (1 of 3)
This allows the team to generate potential returns in any commodity environment. We leverage the expertise and knowledge of our Global Fixed Income team to gain insight into policy and currency developments which influence the commodity markets.
We utilize the same rigorous approach across all three of our strategies to express our best ideas and views given specific portfolio constraints. We offer the ability to shift exposure along the forward curve and move overweight or underweight relative to our benchmarks in an attempt to outperform the various benchmarks.
When attempting to outperform the various commodity benchmarks, we believe it is critical to be able to navigate the entire commodity complex. Commodities can in certain circumstances be a strong inflation hedge, geopolitical hedge and historically at timesa hedge to a downturn in the equity markets.
We believe adding a small percentage of commodities to a portfolio can help mitigate macro events. We invest in real estate assets that span the risk spectrum, through both our multi-manager platform and direct investment strategies. Our capabilities span both primary and secondary real estate fund investments, as well as co-investment opportunities. We also invest directly in US real estate assets. We leverage our real estate investing expertise as well as innovations from our global private equity program and secondaries experience to provide solutions across all market environments.
We source properties and strategies from across our platform as well as the Goldman Sachs network, monitoring evolving trends in various industries and property types. Leveraging our broad market experience, we have developed longstanding relationships with counterparties and established ourselves as a key investment partner able to help identify evolving opportunities to add value, even after the initial investment.
We invest in a wide swathe of the real estate market, engaging in a range of investment strategies to access opportunities spanning various property types, sectors and geographies.
Employing this broad investing approach, we are able to build diversified portfolios. Real estate has the potential to provide an attractive, long-term risk-return profile, with returns driven by a combination of capital appreciation and consistent yields. The tangible nature of the assets may provide stability and value in uncertain macroeconomic environments. A well-designed real estate program requires detailed understanding of value-drivers, including local market dynamics and property-specific characteristics.
With our team extending around the globe, we are well-placed to identify attractive opportunities and niche strategies by leveraging the full scope of firmwide resources. A balanced, properly diversified real estate program, may improve the risk-return profile of a multi-asset class portfolio, as the historical correlation of real estate with more traditional asset classes is often low for the long-term holding periods generally seen in the real estate market. For more information, please contact your GSAM relationship manager.
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Internal View. Market Insights.An alternative investment is an investment in any asset class excluding stocksbondsand cash. The term is a relatively loose one and includes tangible assets such as precious metals art,  wineantiques, coins, or stamps  and some financial assets such as real estatecommoditiesprivate equitydistressed securitieshedge fundsexchange fundscarbon credits venture capitalfilm production,  financial derivativesand cryptocurrencies.
Investments in real estate, forestry and shipping are also often termed "alternative" despite the ancient use of such real assets to enhance and preserve wealth. As the definition of alternative investments is broad, data and research vary widely across the investment classes. For example, art and wine investments may lack high-quality data. In recent years, the growth of alternative finance has opened up new avenues to investing in alternatives. These include the following:. Equity crowdfunding platforms allow "the crowd" to review early-stage investment opportunities presented by entrepreneurs and take an equity stake in the business.
Typically an online platform acts as a broker between investors and founders. These platforms differ greatly in the types of opportunities they will offer up to investors, how much due diligence is performed, degree of investor protections available, minimum investment size and so on. These work much like venture capital funds, with the added bonus of receiving government tax incentives for investing and loss relief protection should the companies invested in fail.
Such funds help to diversify investor exposure by investing in multiple early ventures. Private equity consists of large-scale private investments into unlisted companies in return for equity. Private funds are typically formed by combining funds from institutional investors such as high-net-worth individuals,insurance companies, university endowment funds and pension funds.
Alternative Real Estate Investments
Funds are used alongside borrowed money and the money of the private equity firm itself to invest in businesses they believe to have high growth potential. Venture capital consists of private investments made into young start-up companies in exchange for equity.
Venture capital funds are typically formed by drawing capital from seed moneyor angel investors. Nowadays, crowdfunding is also used by start-up companies for capital. Accredited investors such as high-net worth individuals, banks, and other companies will also invest in a start-up company if it grows to a large enough scale.
In a paper, William Baumol used the repeat sale method and compared prices of paintings sold over years before concluding that the average real annual return on art was 0. For the purposes of the report, alternative investments included "structured products, luxury valuables and collectibles, hedge funds, managed futures, and precious metals". Alternative investments are sometimes used as a way of reducing overall investment risk through diversification.
Liquid alternatives "alts" are alternative investments that provide daily liquidity. In there were an estimated liquid alternative funds with strategies such as long-short equity funds; event-driven, relative value, tactical trading including managed futuresand multi-strategy. This number does not include option income funds, tactical shorting and leveraged indexed funds.
There has been expressed skepticism over the complexity of liquid alts and the lack of able portfolio managers. From Wikipedia, the free encyclopedia. Redirected from Alternative asset. This article needs additional citations for verification.
Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. This section needs to be updated. Please update this article to reflect recent events or newly available information. September Main article: Liquid alternative investment. Retrieved 7 January Alternative investments include venture capital, private equity, hedge funds, real estate investment trusts, commodities as well as real assets such as precious metals, rare coins, wine, and art.
These assets usually perform with low correlation to stocks and bondsmay be difficult to value, and are generally more illiquid than traditional investments. Liquid alternatives are an asset class that has developed in the last few years and includes ETFs and mutual funds that are traded publicly and managed to mimic the performance of an alternative asset class or strategy.
For the purposes of this article, we do not include liquid alternatives in our definition of alternative investments. With some exceptions, only accredited investors are able to invest directly in the assets described above.
This restriction exists because many fund managers rely on private placement registration exemptions that limit their investor base to sophisticated investors. These investments are growing in popularity as institutional investors including pension and endowment funds are increasingly allocating money to alternative investments as they realize the long-term benefits of this asset class. The Yale endowment model is a case study on the benefits of hedge fund and private equity allocation.
The Yale endowment generated Legislation hasn't been finalized to open up these alternative investments to the retail market yet. With the proliferation of technology, investors can directly access and invest in alternative investment opportunities for instance, using a platform such as DarcMatterthe company of which I am CEO. It is recommended that investors consult a trusted financial advisor on what investments fit appropriately within a given portfolio and risk tolerance.
Investors should understand the investment strategy of the fund and be comfortable with its risk profile. Additionally, reviewing the investment professional's background and reputation is essential. While many of these types of investments aren't yet available to retail investors, many of them are. Private equity. There are more private companies than public companies, and many of them take on investor capital. Private equity is a broad term encompassing the entire investment spectrum of the private capital markets, and different private equity firms specialize in multiple investment strategies.
Private equity firms typically raise funds and take capital from both non-institutional and institutional investors. The funds will then be used to place investments in promising private companies. The capital is returned to investors upon an exit event such as an IPO or acquisition after the firm takes its management and performance fee. As mentioned, private equity is a general classification that includes the investment in start-ups, venture capital, and financing throughout phases of a company's growth.
Direct investments in start-ups and private companies. Investors can directly invest into start-ups and private companies as opposed to investing in a private-equity fund.
Investing seed capital directly in start-ups is sometimes referred to as angel investing. This is a high risk and high return strategy for investors as many start-ups end up failing. A private company will seek investors through a private placement based on a certain valuation. Retail investors can participate in some offerings depending on the type of registration exemption the company relies upon. Companies seek investment capital throughout their life cycles', so more mature companies can also be targeted for investment.
Venture Capital. This is a subset of private equity specializing in the investment in early-stage to growth-stage companies. Firms will specialize in early stage investing, raising funds from high net worth and institutional capital and deploying them to companies ranging in industry, geography, and funding stages.
This capital source is very important for start-ups and early-stage companies that have no access to public financing as most of them lack extensive operational or revenue history. Venture capital is typically a risky asset class, but can produce outsized returns upon a successful liquidity event.
Real Assets. Real assets are physical or tangible assets that have intrinsic value such as real estate, oil, precious metal commodities, and agriculture land. Luxury and collectable goods also fall into this category, including wine, art, jewelry, rare coins, and baseball cards.
Investors can buy real assets directly or invest with a fund specializing in real assets, like art investment fund ArtVest Partnersfor instance.
Hedge Funds. These are pooled investment funds that are formed to invest in a variety of strategies and asset types.Almost anything of value can be used as an investment, but alternatives usually come with more risks and higher costs. Because these types of investments are more complex than stocks and bonds —and often come with very high costs—we don't recommend them for most investors.
A commodity is a good that is basically interchangeable with the same good from another producer. For example, wheat, oil, beef, and coffee are commodities. While it's possible to invest directly in commodities say, by buying 10, pounds of sugarmost commodities are traded through "futures contracts"—a promise to buy or sell a certain amount of the commodity at a specified price on a certain date.
Buying gold, silver, platinum, or other precious metals is sometimes touted as a way to hedge the risks of more traditional investments. However, prices of these metals can be extremely unpredictable and volatile. Investing directly in real estate can mean buying, selling, and maintaining a collection of properties—which is expensive and time-consuming. Many people already have a large exposure to real estate—through owning a home. For most investors, this plus an investment in a broad portfolio of stocks and bonds which can include real estate investment trusts and mortgage-backed securities offers plenty of exposure to real estate.
MLPs exist mostly in the energy industry. Direct investments in MLPs could provide more favorable tax treatment than you'd get by investing in an energy fund or by buying a specific energy company's stock. From ETFs and mutual funds to stocks and bonds, find all the investments you're looking for, all in one place. Usually refers to common stock, which is an investment that represents part ownership in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits.
A bond represents a loan made to a corporation or government in exchange for regular interest payments. The bond issuer agrees to pay back the loan by a specific date. Bonds can be traded on the secondary market. All investing is subject to risk, including the possible loss of the money you invest. Skip to main content. Search the site or get a quote. Alternative investments Almost anything of value can be used as an investment, but alternatives usually come with more risks and higher costs.
For most investors, a portfolio of stocks and bonds provides plenty of diversification. Only the most sophisticated investors should consider alternative options. Nearly anything that has the opportunity to increase in value can be used as an investment.