This year, the alternative investments market is set to grow remarkably across continents. And amid the economic volatility that will mark 2017 and possibly the next couple of years, it makes sense that more investors are turning to these newer investment vehicles.
Alternative investments refer to a broad category of assets which are not among the conventional class – the stocks, bonds, or cash. Instead, they include hedge funds, private equity, real estate investments, and managed futures. Currently, this asset class draws more of the high-net worth investors that can handle the many risks involved, which exist in the context of limited regulation. This is the same context that made the sector so vulnerable to controversies in the past years, which it is still reeling from.
Alternative assets are characterized by low liquidity – they are relatively harder to divest when one is in need of dry powder because they cater to a smaller share of the market. They also require higher minimum investments and management fees. At the same time, returns could be worth it, in the same way that unique products, while attracting a less number of investors, could be sold under a more flexible pricing scheme. Moreover, it is an ideal investment if one seeks to diversify assets, because its performance is not as affected by the same factors that are known to readily impact the fund growth of stocks and bonds.
This way, the alternative assets serve to hedge against the typical economic conditions that affect the standard asset classes, such as political and economic shocks, economic policy developments, devaluation of currencies, inflation or deflation, and the rise and fall of interest rates.
However, a truly lucrative alternative investments operation depends on a smoothly-functioning organization – one that is adept at risk analysis and management, understanding emerging trends in the securities and investments sector, and strategizing amid an atmosphere of uncertainty. These days, alternative assets managers also need to grapple with increasing regulation across many markets, with more industry and government authorities, as well as the client-investors themselves, demanding greater accountability and transparency and better fund performance from the fund managers.
Thankfully, third party firms have come to complement the resources of firms managing alternative investments. These firms provide staff support and technological tools to aid in the performance of day-to-day functions, especially middle and back office tasks and fund administration. Together, they are able to weather the emerging challenges in this growing domain.