20 Nov 2023
#Investment Advice
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As a property investment company committed to growing our clients' wealth, we prioritize transparency in presenting the various options within the alternative asset industry we operate in. This industry is a broad and dynamic sector encompassing a wide range of assets that are not traditionally considered part of the public markets. In recent years, there has been a growing interest in alternative investments among individual investors, driven by factors such as diversification, volatile public markets, and the search for uncorrelated returns. According to Preqin, total assets under management in the alternative assets industry are projected to reach $23.3 trillion by 2027, an approximate 80% increase from the $13.3 trillion recorded in 2021.
Goldman Sachs is equally optimistic, noting a doubling of assets in non-publicly traded markets to about $10 trillion over the past five years, as reported by McKinsey & Co.
What are the best alternative assets to invest in?
Here are some of the biggest and fastest-growing assets in the alternative investment industry available to individuals:
1. Real Estate: Real estate has long been a popular alternative investment for individuals, offering the potential for both income generation and capital appreciation.
It stands out as the largest sector in the industry, valued for its potential to diversify portfolios, reduce volatility, and amplify returns through leveraged capital appreciation. Even in an inflationary or volatile environment, it performs well as investment properties derive their value from a rent-based multiple, and as rents increase due to inflation, the overall value of the property also rises.
There are a variety of ways to invest in real estate, including direct ownership of property, real estate investment trusts (REITs), and real estate crowdfunding platforms.
To find out about your options, contact IP Global here, we’ve been active in this market globally since 2005 with over USD3 billion invested on behalf of our clients.
2. Private Equity: This form of investment involves backing non-publicly traded companies, presenting both high-risk and high-return potential. It includes opportunities in venture capital and traditional private equity, allowing investors to participate in burgeoning enterprises.
Private equity investments, known for their illiquidity, can be challenging to sell quickly. However, they hold the promise of significant returns post a successful merger, initial public offering, or acquisition.
Venture capital, a subset of private equity, focuses on early-stage companies with substantial growth prospects, offering a risky yet potentially rewarding investment that may take years to mature.
3. Art and Collectibles: Art and collectibles (such as antiques, rare wines, memorabilia and designer products) can be valuable assets that appreciate over time.
Unlike stocks or bonds, the value of collectibles is influenced by factors such as cultural significance, scarcity, and trends in taste, providing a hedge against market volatility.
Additionally, these investments can offer a tangible and enjoyable ownership experience, blending financial potential with personal satisfaction.
However, it's essential for investors to conduct thorough research, be aware of market trends, and understand the risks associated with the often-subjective nature of valuations and the potential illiquidity of these assets.
4. Natural Resources: Natural resources, including oil, gas, and precious metals, represent an alternative asset class with both advantages and disadvantages. On the positive side, these assets have the potential for high returns.
The demand for natural resources often correlates with global economic growth, and fluctuations in supply and demand can lead to substantial price movements, offering investors opportunities for significant profits.
However, a drawback associated with investing in natural resources is their inherent volatility. Prices of commodities like oil and precious metals can be highly sensitive to geopolitical events, economic conditions, and other external factors. This volatility introduces a level of risk that may not be suitable for all investors, and sudden price swings can lead to substantial losses.
Therefore, while natural resources present the potential for lucrative returns, investors must carefully assess and manage the associated risks.
5. Infrastructure: Infrastructure investments can involve projects such as roads, bridges, and airports. These projects can be long-term investments, but they can also offer the potential for stable returns. These ventures often serve as essential elements of a nation's economic infrastructure, promising long-term reliability.
Investors are attracted to the steady income generated by well-maintained infrastructure, particularly in cases where public-private partnerships or concession agreements are involved. For instance, toll roads can provide a consistent revenue stream, offering an attractive proposition for those seeking stable returns over an extended period.
However, the allure of infrastructure comes with certain challenges. These investments tend to be capital-intensive, requiring substantial upfront funding for planning, construction, and maintenance. This capital commitment can be a limiting factor for individual investors or smaller institutions.
Furthermore, infrastructure projects are exposed to various risks, including delays, cost overruns, and changes in regulatory landscapes so political and economic factors play a pivotal role, influencing the success and profitability of these projects.
6. Impact Investing: Impact investing combines financial returns with positive social and environmental outcomes. Investors are attracted to this approach because it allows them to align their capital with values, addressing global challenges like climate change and poverty. It encompasses investments in sustainable businesses, green projects, and initiatives supporting social causes.
The growing interest in impact investing is driven by a heightened awareness of environmental and social issues, with investors recognizing the importance of considering such factors for long-term financial success. This approach has contributed to the rise of dedicated impact funds and investment platforms.
7. Digital Assets: Digital assets, such as cryptocurrencies and non-fungible tokens (NFTs), are a new and emerging asset class with the potential for high returns. However, they are also highly volatile and speculative.
Why invest in alternative assets?
Beyond the traditional asset classes of stocks, bonds, and cash, alternative investments offer a unique suite of diversification, growth potential, and risk-adjusted returns.
By venturing beyond the public markets, investors can tap into private company valuations, higher growth opportunities, and lower cost structures, often leading to superior risk-adjusted and nominal returns compared to traditional investments.
Additionally, alternative assets exhibit lower correlation to public markets, providing a hedge against inflation and generating a reliable stream of passive income.
While alternative investments may carry higher complexity and illiquidity, they offer a compelling avenue for diversifying portfolios and potentially achieving enhanced investment outcomes.
