Alternative investment refers to the assets that fall outside the usual cash, bonds, or stocks. Common examples of alternative investments are private equity, hedge funds, commodities, and real estate. In the opinion of Kavan Choksi / カヴァン・ チョクシ, while alternative investments are less liquid than traditional options, they do have the benefit of low correlation with stock markets. Alternative investments help investors to diversify their portfolio and even enjoy higher returns.
Kavan Choksi / カヴァン・ チョクシ talks about the popular options for alternative investments
Alternative investments are financial assets that do not belong to conventional investment categories like bonds, cash, or stocks. The popularity of such investments has accelerated in recent years, particularly as an increasing number of investors choose to diversify their portfolios. The current financial environment necessitates investment portfolio diversification in order to reduce risk and boost earnings. Alternative investments typically attract investors seeking more security than stocks but greater returns than fixed deposits.
Here are a few of the most popular options for alternative investments:
- Private equity: Investing in private firms implies to putting money into businesses that are not listed on the stock exchange. This includes areas like growth capital, venture capital, and buyouts, where investors generally provide mentorship to help companies succeed. These investments may deliver higher returns, but require a long lock-in period before the profits can be accessed.
- Private debt: Non-bank loans, also known as private debt, are basically loans that companies take from private debt funds rather than public markets. Such loans are repaid through principal repayments and interest payments over time.
- Hedge funds: Hedge funds use advanced investment strategies to deliver high returns. They typically employ market neutral, long-short equity, and volatility arbitrage techniques in order to balance profits and risks. Hedge fund investments are popular among institutional investors and high-net-worth individuals. While they do carry high risks, hedge funds also offer the potential for significant rewards.
- Real estate: Real estate is the largest asset class in the world, and combines features of both stocks and bonds. Investors earn steady cash flow through rental income, while benefiting from long term growth in property value. Discounted cash flow and income capitalization are methods commonly used to value these assets. This mix makes real estate investments a prudent choice for balancing income and capital appreciation.
- Commodities: Physical commodities like agricultural products, gold, natural gas, and oil have been traded for centuries. As their value often rises with price levels, commodities serve as a hedge against inflation. Prices of commodities are largely driven by global supply and demand cycles. Such goods are traded on formal exchanges to make them accessible to investors and businesses.
As per Kavan Choksi / カヴァン・ チョクシ, alternative investments are becoming increasingly accessible, with a variety of registered funds and evergreen vehicles now offering exposure to asset classes like private equity, private credit, and private real estate. These options often come with lower entry requirements, enhanced liquidity, minimal investment thresholds, and simplified tax reporting.
