The investment landscape has undergone a significant transformation in recent years since traditional investments like stocks and bonds are no longer the only game in town!
As we move further into the 21st century, investors need to be open to new investment vehicles to stay ahead of the curve. Alternative investment funds (AIFs) have emerged as new-age investment tools that are gaining popularity among investors who are looking to diversify their portfolios and achieve higher returns.
According to a recent report, AIFs have outperformed traditional investments like mutual funds and equities over the past few years, with the top-performing AIFs delivering returns of over 30% per annum.
The AIF industry has seen rapid growth in recent years, as high-net-worth individuals (HNIs) are increasingly looking for diversification and higher returns than those offered by traditional investments. Besides, AIFs can provide exposure to a wide range of alternative asset classes, from private equity and real estate to commodities and infrastructure.
Let Us Explore the 7 Most Trending Types of Alternative Investments That Everyone Should Be Aware of in 2023:
1) Private Equity
Private equity investments involve investing in companies that are not publicly traded. These investments are typically made by institutional investors, such as private equity firms, and can provide high returns and hence comes with the relevant risk.
Private equity firms raise capital from investors and then use that capital to acquire or invest in companies that they believe have high growth potential. They typically hold these investments for several years, with the goal to increase the value of the company and then selling it for a profit.
One of the major benefits of private equity investments is that they are not subject to the same regulatory requirements as publicly traded companies, which can allow for greater flexibility and creativity in terms of investment strategy. However remember, private equity investments are also illiquid, making it tricky to sell them before the end of their investment term.
2) Hedge Funds
Hedge funds are a type of investment fund that typically use more aggressive investment strategies to generate higher returns and hence also come with high fees and can be subject to significant volatility and risk. These funds are usually limited to accredited investors and require a high minimum investment.
Hedge funds can use a wide range of investment strategies, including short selling, leverage, and derivatives. Similar to private equity investments, they are not subject to the same regulatory requirements as mutual funds or other types of investment funds, thus have greater flexibility in terms of investment strategy and entail high yields.
3) Alternative lending
It is a type of investment that involves investing in loans to individuals or businesses. This can include peer-to-peer lending platforms, crowdfunding, and other forms of alternative finance such as loans against securities.
Alternative lending can provide high returns compared to traditional fixed-income investments like bonds, as well as the potential for diversification and lower correlation to other asset classes.
4) Real Estate
Real estate is an alternative investment that involves investing in physical property or real estate-related assets. This can include commercial or residential properties, as well as real estate investment trusts (REITs).
Real estate investments can provide a hedge against inflation and market volatility, as well as the potential for rental income and appreciation in property value. However, real estate investments also require significant capital and can be subject to market fluctuations and changes in the real estate market.
Investors who are interested in real estate investments may consider investing in REITs, which are publicly traded companies that own and manage a portfolio of real estate assets. REITs can provide exposure to the real estate market without the same level of capital required to invest in physical properties.
Infrastructure investments involve investing in physical assets like roads, bridges, and other public infrastructure projects. These investments can provide a hedge against inflation and generate a steady income through tolls or other usage fees.
Infrastructure investments can be made through private equity funds, public-private partnerships, or other investment vehicles. However, they are often subject to political risk and regulatory challenges.
6) Start-up and Early-Stage Venture Funds
Category I alternative investment funds mostly invest in start-ups or early-stage ventures that are considered socially or economically viable. These funds offer investors the opportunity to invest in companies that have the potential for high returns but are also inherently risky. Start-up and early-stage venture funds are popular among angel investors and venture capitalists who want to invest in innovative companies with high-growth potential.
One notable trend in this category is the increasing popularity of investing in start-ups that focus on technology and sustainability. As the world becomes more focused on finding solutions to climate change, investors are looking to support start-ups that are developing innovative and sustainable technologies.
Cryptocurrencies have emerged as a popular alternative investment option in recent years, driven by the popularity of Bitcoin and other digital currencies. Cryptocurrencies are decentralized digital assets that use encryption techniques to regulate the generation of units of currency and verify the transfer of funds.
While cryptocurrencies can be highly volatile, they offer investors the potential for high returns. Investing in cryptocurrencies requires a high degree of technical knowledge and understanding of the market, making them a potentially risky investment option. However, as the popularity of digital currencies continues to grow, they are becoming an increasingly mainstream investment option.
Having been informed about the lucrative Alternate Investment Options, remember that investing in these funds requires a deep understanding of the market and investment strategy. Investors need to do their due diligence and carefully evaluate the investment manager’s track record, investment philosophy, and risk management practices before investing.