Why Invest in Alternative Assets?

As traditional investments like stocks and bonds become increasingly volatile, more investors are looking to alternative investments like art, wine, and property as a way to diversify their portfolios and potentially reap higher returns. With the recent economic uncertainty caused by the COVID-19 pandemic, alternative investments have become an attractive option for investors looking for stability and growth potential.

One reason why now is a good time to consider alternative investments is the increased accessibility to these assets. In the past, alternative investments were typically only available to the wealthy or institutional investors. However, the rise of alternative investment platforms has made it easier for everyday investors to gain access to a range of alternative assets, including art, wine, and property. This increased accessibility has opened up new opportunities for investors to diversify their portfolios and potentially achieve higher returns.

In addition, the current low-interest-rate environment has made it difficult for investors to generate significant returns through traditional investments like bonds. As a result, investors are looking to alternative investments as a way to achieve higher yields. For example, the Knight Frank Luxury Investment Index shows that rare whisky, art, and classic cars have outperformed traditional assets like stocks and bonds in recent years.

Furthermore, the pandemic has led to a shift in consumer behavior, with more people investing in their homes and personal spaces. This trend has created opportunities for investors to capitalize on the demand for high-end property and luxury goods. For example, investors can purchase shares in luxury real estate investment trusts or invest in fine wines and spirits through online marketplaces.

It is important to note that alternative investments do come with their own risks, and investors should carefully consider the potential drawbacks before investing. However, for those willing to do their due diligence, alternative investments can offer the potential for higher returns and diversification in a volatile market.

How do alternative investments fit in your portfolio?

 

Category dropdown – User chooses category and then we go into details. Pass on expertise. The changing landscape of each.

For each category we touch on the following:

Growth in the past 10 years

Over the last decade, alternative investments have been gaining traction among retail investors. According to a report by McKinsey & Company, alternative investments have been growing at an average rate of 10% annually since 2010. This growth is largely due to increased access to information and technology, which has made it easier for investors to research and invest in alternative assets.

Assets such as private equity, real estate, commodities, and art have historically been more difficult for retail investors to access, but advances in technology have made it easier for them to invest in them. A contributing factor to the growth of alternative investments is low-interest rates, which have pushed investors to look for higher returns in non-traditional investments.

According to a report by PwC, the alternative investment industry grew to $10.7 trillion in assets under management in 2020. The report also found that private equity, real estate, and infrastructure investments were the largest components of the industry, accounting for more than half of all alternative assets under management.

One area that has seen significant growth in recent years is the market for collectibles, such as art and rare whisky. The Knight Frank Luxury Investment Index shows that the value of luxury investments has risen by 127% over the past decade. This figure is a testament to the growing appetite for alternative investments, which are now considered an essential part of a diversified portfolio.

Regulation is good for retail investors

Regulation of alternative investments is good for retail investors because it helps to level the playing field. Without regulation, retail investors are at the mercy of unscrupulous operators who can take advantage of their lack of knowledge and experience. These operators can use high-pressure sales tactics, misleading advertising, and other techniques to persuade retail investors to invest in unsuitable or inappropriate products. This can lead to significant losses and financial hardship for those who can least afford it.

With regulation in place, retail investors can be assured that they are investing in products that have been thoroughly vetted by regulatory bodies. Regulation can also help to promote transparency and accountability in the alternative investment world, making it easier for retail investors to understand the risks and potential rewards of the products they are considering.

Accreditation

An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. The government allows access to these securities by satisfying requirements regarding their income, net worth, asset size, governance status, or professional experience.

It is governed by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are “financially sophisticated” and “have a reduced need for the protection provided by regulatory disclosure filings”.

For a retail investor, you must qualify under either of the following two categories:

Financial Criteria

Must qualify under one:

  • Net worth over $1 million, excluding primary residence (individually or with spouse or partner)
  • Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year

Professional Criteria

Must qualify under one:

  • Investment professionals in good standing holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)
  • Directors, executive officers, or general partners (GP) of the company selling the securities (or of a GP of that company)
  • Any “family client” of a “family office” that qualifies as an accredited investor
  • For investments in a private fund, “knowledgeable employees” of the fund

 

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