Alternative Investments
Opportunities Beyond Traditional Investments
Most investors are familiar with publicly available investments such as stocks, bonds, mutual funds, and exchange traded funds (ETFs). An alternative investment, including private markets, is essentially a financial asset that does not fit into one of the conventional categories.
Alternative assets have their own characteristics, risks, and opportunities
Alternative assets can:
Help reduce volatility
Provide diversification
Often offer low correlation to traditional investments
Provide exposure to private equity, credit, and real estate among others
What Makes Alternative Investments Different
Alternative investments are not typically available in conventional, retail investment accounts, but they can be incorporated into a managed investment account, tactical portfolio, or in a stand-alone account with an advisor. Below is a simplified comparison between public investments and alternative investments.
Alternative Investments
Public Investments
Are not listed on an exchange
Trade on an exchange
Often have an initial lock-up period followed by quarterly liquidity
Can be bought and sold daily
Historically limited to institutional investors with high minimums; have more recently been available to retail investors with lower minimums
Having daily liquidity is important for the majority of an investor’s portfolio
Priced by a 3rd party appraisal firm; reflects actual fair value of the assets
Ability to buy or sell daily can allow an investor’s emotion to impact trading decisions
Generally provided less volatility than public markets which could help with investor emotions
Volatility can make investor’s “panic” or become uncomfortable
Fees and overall cost are typically higher than traditional mutual funds and ETFs
Generally charge low to moderate fees and expenses
Beaumont focuses on three primary areas of private investments:
Private Credit
Funds that make direct loans to private companies to help support their growth. Public companies can issue corporate bonds to raise capital necessary to grow their business, while private firms would traditionally take a bank loan. Increased regulation has led banks to offer fewer loans to private companies. Alternative asset managers are filling this void by making direct loans to these private companies providing them with capital and an opportunity to grow.
Private Equity
Funds that invest in a portfolio of private companies before they go public. With companies staying private longer, private equity funds provide exposure to these private companies early in their lifecycle.
Private Real Estate
Private Real Estate offers investors access to institutional quality real estate and can strategically invest in sectors believed to be appropriately positioned for today’s real estate environment. For example, real estate sponsors may strategically focus on data centers, multi-family housing, and industrial logistic warehouses. Private real estate funds typically own the underlying properties while public real estate funds normally own the publicly traded stocks of real estate companies.
Check out our latest Market Insights
Viable Investments
Alternative investments have become increasingly popular in institutional portfolios, including endowments, pension plans, helping to validate their reputation and standing as a viable investment choice.
Alternative investments are not appropriate for everyone, and the adoption by, and suitability for, institutional portfolios does not mean they are right for individual investors.
See what else Beaumont can do for you
From asset allocation to tax advisory services, our team has you covered.
Start a conversation
We look forward to discussing how our team can help you achieve all your financial goals.