Types of Alternative Investments

Alternative investments is an umbrella term to refer to anything not available via a public market. Alternatives are attractive to high net wealth investors looking for diversification, higher returns and reduced volatility. Where traditional investment classes refer to items such as stocks, bonds and cash, alternative investments commonly refer to real estate, private equity, private credit and much more.

Due to being a catch-all, alternatives can have the connotation of being unsafe and risky. For instance, other alternative investments can include cryptocurrencies and passion assets (such as art or collectables).  The reality is that alternatives risk levels can vary from low to high, all dependent on the asset.

The most popular alternative investment classes include property, equity, credit, structured products and notes. We delve into these assets below:

Property

A large asset class and perhaps the most popular alternative investment, property investing covers a wide range of sectors.

Residential property - Property that people live in, however in the context of alternative assets, usually referring to residential development projects such as land subdivisions, townhouses, apartment blocks and residential towers.

Commercial property - Anything referring to property for a business, such as office space, shopping centres, golf courses etc.

Agricultural property - A subset of commercial property, however a diverse investment class as it could refer to investing in the equity and ownership of the farm, or providing a loan to a farmer to expand their operations.

Industrial property - A subset of commercial property, referring to factories, warehouses, data centres, manufacturing, storage and production.

Property equity:

Project-based property development - Investing equity in a development, where equity plus return is paid back at the end of a successful project.

Established assets - Investing equity in an established business such as a leased office building or shopping center with appreciation over the long term, along with rental yield.

Private Credit

Private credit includes a range of unsecured debt across a wide range of asset classes. The figure below helps explain the debt stack.

A notable investment type in private credit is asset-backed lending. This is investing with control of that asset, for example having control of a loan book within a financing company.  In such instances, the book of loans is the asset.

Private Equity

Private equity is buying an equity stake of a private company.  Private equity firms often take reasonable-size investments in order to take control from both an equity ownership percentage and seats on the board.

Equity Capital

Equity capital encapsulates a range of investments, including straight equity (buying equity in a private company to own part of the company), and preferred equity (invest in a company without owning part of the company, instead in exchange for a defined return).

Structured Products/Structured Notes

Investors buy structured products because they can obtain a more tailored investment, compared to traditional investments. Combining a debt obligation (often a term deposit or bond) with a derivative (such as a call option) is a common example.

Infrastructure

Includes economic infrastructure (toll roads, bridges, railways, airports) and social infrastructure (government owned buildings such as schools, hospitals, government offices). Both types have large asset sizes and valuations, so are typically invested in by institutional investors and fund managers.

Commodities

Typically referring to raw material assets like gold and silver. They often have hedge-like characteristics as they have low correlation to other asset classes.

For an in depth explanation on the extensive range of alternative asset investments, read iPartners CEO, Travis Miller’s book ‘Grow your wealth faster with Alternative Investments’.

To start exploring the large range of alternative asset investments available via iPartners, get in contact or register today.