A planned and strategic alternative investment portfolio
Which will be a counter to a volatile capital market
Alternative investments are an alternative to investments in the capital market, since they are not carried out in the “classic” way through the capital market, stocks and bonds, but through alternative private funds. As of 2021, the global alternative investment market is estimated at $13.3 trillion. According to various forecasts, the field will double within five years.
Private funds are not directly affected by the ups and downs of the capital market and its volatility, therefore alternative investments are also seen as an excellent alternative for investors who do not like high risk and want to create relative stability in the investment portfolio. In the past, alternative investments were made mainly through large bodies or institutions, but today many more private investors enter the field of alternative investments.
Alternative investment is done through private funds, for example: investment in technology companies through a venture capital fund, investment in real estate in Israel and abroad through real estate funds, investment in national infrastructures and ‘green energy’ companies through infrastructure funds, investment in funds that provide credit to entrepreneurs and consumers, loans social, etc. An alternative fund is a private fund whose investors are considered “limited partners” in the fund.
The fund is managed by a “General Partnership” which is a person or company. The investors in it are defined as “limited partners” (Limited Partner) and they bear responsibility for the fund’s debts only up to the amount of their investment.
An example of common alternative investment funds
The purpose of the fund is to improve and improve the profitability of companies or assets that are in distress, or that have a high potential for profitability, and to realize the investment after a period, usually several years.
Real estate funds, as the name implies, is a private or public investment fund whose purpose is to invest in profitable real estate. Real estate funds locate various investment opportunities: residential buildings, hotels, TAMA 38 projects, industrial real estate, office buildings, etc. The returns from real estate investments can be high, and investors benefit from professional information from experts in the field investing the money. Another advantage of real estate funds is the possibility of dividing the investment into all kinds of real estate assets and many assets, so that risk is spread.
A hedge fund “frames” the profits and losses: its goal is to maximize the chances of profit in any situation the market is in. Its goal is to achieve a consistent return over time and to reduce as much as possible the dependence on the market situation. The fund often uses different investment strategies and smart financial instruments, for example: investing in the capital market by buying options or short selling. A hedge fund is built in the structure of a limited partnership and its liquidity is usually monthly or quarterly.
Debt funds are seen as a solid alternative investment channel, as a counter to a volatile capital market. The funds provide credit to companies and entrepreneurs, usually for investment in the real estate sector, using assets pledged to the fund against the investment and with a relatively high level of control.
Is it worth it or not to invest in alternative investments?
Let’s start with the advantages
Because of the low interest rates in Israel, Europe and many parts of the Western world, there is a probability of a high return in alternative investments compared to the capital market. In recent years, the high demand for alternative investments has led to growth and competition, which have made it possible to appeal to a wider audience and invest in lower amounts than in the past.
Alternative investments are less affected by the volatility of the market and therefore may produce stability in the investment portfolio. They open up investment options outside the capital market and thus increase diversification. They are suitable as balances for an investment portfolio, most of which is in the capital market, and may be very suitable for investors who do not like high risks.
You cannot get rid of it immediately
Why is this an advantage? Because alternative investments are illiquid, and cannot be sold so quickly, their volatility is not great. In this way they overcome the disadvantage of the capital market in times of crisis when many people sell their shares immediately, which increases market volatility.
Alternative investments are not affected by impulsive sales, and therefore maintain their economic value as long as they show value and profits. This does not mean that alternative investments are not affected by what happens outside: they are affected by a real crisis or bad management, but they do not react to every storm in the capital market.
In some investments, such as investing in start-up companies and real estate, you can receive dividends once a period.
What should be taken into account before entering into alternative investments?
Most of the alternative products are intended for “qualified” customers – customers who have over NIS 8 million in liquid assets in securities and deposits. Alternative investments start with high sums of hundreds of thousands of shekels and it is not possible to start with low sums.
Investment duration and liquidity
Alternative investments are long-term investments. The duration is a result of the type of investment and contracts that determine the minimum investment period. During this period the money will not be liquid but “closed” in the investment.
Access to information
The current information regarding the activity of the fund in which you have invested cannot be obtained at any given moment except in periodic reports, and it is much less accessible and available. The lack of availability may leave you with many question marks because it will be more difficult to identify in real time the realization of the risks.
Costs and benefits for buying/selling securities will be upgraded according to the arrangement of the investment house.
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