What are Alternative Investments?

Alternative investments are financial assets that do not fall neatly into conventional investment categories, like stocks, bonds, or cash. The most common alternative investments include pre-IPOs, real estate, private equity/venture capital, hedge funds, loans, and contracts like futures.

How Are Alternative Investments Different?

Alternative investments are assets in a variety of forms that does not categorize as a typical or conventional investment type such as stocks, bonds, and cash. Alternative investments are inclusive of real estate investing, hedge funds, private equity or venture capital,  managed futures, art and antiques, commodities, and more. In the graphic below, we’ve outlined the key differentiation between traditional investments vs. alternative investments.

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Alternative investments listed above are for illustration purposes only and represent several common alternative investments.

 

Most investors don’t explore alternative investments

Wealth Concierge Services and Alternative Investments are attractive investments to qualified retail investors because they are usually uncorrelated (meaning they do not follow the stock market). Because they don’t follow the stock market, alternative investments have the potential to provide very different returns.

Why invest in Alternative Investments?

One of the biggest reasons that people avoid alternative investments is because they think they are “volatile” or “high-risk”.

In reality, alternative investments tend to provide similar or higher returns than stocks and bonds, but with far less volatility. On average, the price swings of alternative investments are not as dramatic as those of stocks. This means that when alternatives lose value, they tend not to lose as much value as stocks do during market downturns.

 

Compared to stocks, most alternative investments have similar returns but lower volatility

Because of alternative investments’ relatively low volatility as a whole compared to stocks, they also suffer smaller drawdowns. With less volatility and lower drawdowns come more stable returns.

This is demonstrated by “efficient frontier movement,” which measures how an investment behaves compared to traditional investments. A portfolio that combines both traditional and alternative investments is expected to significantly outperform one with traditional investments alone.

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The problem of access

Unlike traditional stocks and bonds, alternative investments are usually less liquid, require larger upfront investments, and are typically available only to the super wealthy. That’s why institutional investors with deep pockets—like university endowments, banks, and funds—can access these types of investments.

For the average investor, it’s not so easy.

However, thanks to the JOBS Act, there are now products that pool investor money together into an SPV (Special Purpose Vehicle) or funds for as low as a $50k or $100k investment. How does it work? That entity then acts as the “institution” and buys the $50 or $100 million block, obtaining access for all its pooled investors.

HUDSONPOINT Capital does just that, using SPVs or other sources to provide access to alternative investments for our clients.

At HUDSONPOINT Capital, we have been serving accredited investors for over 20 years. Using our Wealth Concierge Services we guide our clients toward richer, more prosperous retirement by helping them access alternative investment strategies and vehicles.

We’ll find the right investment solutions to meet your financial goals

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