Albeit popular consensus says that, given their past and present performance, institutions are likely to continue increasing their holdings in alternative investments; the nontraditional offerings must continue to provide dependable returns, as well as demonstrate their low correlation to volatile stock markets and the uncertainty of bonds. If they fail to do so, they may quickly lose their appeal. In the meantime however, a growing number of institutions are carefully considering how to utilize alternative investments to improve the performance of their entire investment portfolio.
According to investing analysts, the trend that has seen institutions increase their allocation to alternative investment options, is likely to continue.
Common alternative investment strategies, such as private capital, real assets like real estate investments, hedge funds and commodities, are increasingly being used by institutional investors to help them achieve both investment return and diversification objectives. Because much of the money that they manage belongs to hard-working men and women, as well as non-profit organizations, institutional fund managers must repeatedly choose investing options that deliver real, lasting value to their clients.
Nowadays, institutional investors have four recognized alternative investment options to pursue on behalf of their clients:
- Private Capital. These investments include both equity and debt positions that, among other things, are not publicly traded. Private equity investments, such as peer-to-peer lending, have emerge primarily from the funding of new ventures, known as venture capital. The ultimate goal is to generate large profits primarily through a business’ success.
- Real Assets. This category focuses on investments in which the underlying asset involves direct ownership of non-financial assets like shipping container investments, rather than through ownership of financial assets, such as the securities of manufacturing or service enterprises.
- Hedge Funds. These are privately organized investment vehicles that use a less regulated environment to generate investment opportunities that are substantially distinct from opportunities offered by traditional investment options, which are (as we all know) subject to strict regulations.
- Commodities. These are alike goods that are available to investors in large quantities, such as energy products, agricultural products, precious metals or gemstone investments, and building materials like timber.
In a world of uncertain markets and persistently low yields, an increasing number of institutional investors are turning to alternative investments to help them achieve the investing outcome they need. Make no mistake, they are not alone in this mindset. Private investors are beginning to see that nontraditional investments are a good alternative too.