Alternative Investment Strategies

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Understanding the Alternative Investments

Investment alternatives that do not belong in the typical investment classifications, such as stocks and bonds, are known as alternative investments. The term "alternative investment" refers to a broad range of material and monetary assets that can be included in a high-performing portfolio to supplement standard investments.

The phrase "alternative investments" refers to a wide range of investment products that do not fit into the typical public securities category, including government securities, public funds, stocks, and bonds. Alternative investments are private and less-regulated asset classes that include real estate, infrastructure, venture capital, private equity, private credit/debt, and tangible assets.

How can a portfolio be made more balanced and diversified using alternative investing strategies? Because they are not dependent on the market, they are usually less negatively impacted by market volatility than conventional assets like stocks and bonds. They can reduce some risks in your portfolio, produce passive income, and boost profits in some situations.

Profiting from the various investment options available calls for astute, strategic investing because each alternative asset has unique risks associated with it. You can choose and access the best assets for your financial condition by working with a fiduciary investment management team that has experience reducing risks and investing in alternative investments.

Why invest in alternatives?

The broad range of investments that alternatives provide—including a variety of investment kinds, asset classes, and characteristics—is what makes them so appealing overall. This offers significant prospects for investment portfolio diversification and expands the options available to meet investor objectives.

The following characteristics of alternative offerings contribute to the diversification benefits of alternatives

  • Historically, a number of alternative asset classes have outperformed traditional equities in terms of risk-adjusted returns.
  • Alternative investment returns do not exhibit a strong correlation with returns on publicly traded securities.
  • Because the alternatives are valued on a quarterly basis instead of a daily one, they are less volatile.
  • Alternatives include asset classes, such as impact funds, that might be more appropriate than public stocks to satisfy specific financial goals, like achieving socio-economic goals.

Investing in Alternative Assets: The Initial Steps

Identifying open offerings, conducting due diligence on particular opportunities, and comprehending the various structures and methods that are accessible are all necessary when investing in alternatives. The minimum investment may occasionally exceed the investor's capacity to contribute.

In order to assist investors with these challenges, we develop investment offerings that cover a range of private market strategies, partner with well-known international experts in alternative investments to offer and manage these kinds of investments and make these investments accessible to individuals via intermediary funds that have lower minimum commitment requirements.

In addition to lowering minimum capital requirements, Enterslice conducts due diligence on investment issuers and GPs and provides liquidity opportunities for investors.

The Requirement of Alternative Investments

To achieve the goals of their portfolios, investment managers employ a variety of techniques or "investment strategies." They are crucial in establishing the portfolio's potential risks and returns. Investors are driven to seek out diversity and advantageous options in order to navigate market disruptions due to the constraints and challenges associated with traditional investments. Asset classes that do not fall under the typical investment category are included in alternative investments. Because of their appealing qualities, they can assist you in navigating volatile market conditions

Long-Term Perspective: A longer lock-in period is a feature of many alternative investment methods. The long-term strategy might lessen the effects of transient market swings and be more in line with the underlying assets.

Diversification: Alternative assets have a lower correlation with the overall market than stocks do. You can reduce the total risk exposure to volatile assets in your portfolio by including alternative asset classes.

Possibility of Greater Returns: While alternative investments come with a range of risk profiles, certain approaches, such as startup equity, peer-to-peer lending, and securitized debt instruments (SDIs), present a possibility for greater returns.

Access to Private Markets: Market disruptions have the potential to drastically reduce the quantity of conventional public market investments available and open up access to private markets.

Inflation Hedge: Volatile economic times could result in temporary inflation. A few real and revenue-producing alternative investments can serve as an inflation hedge.

Risk Control And Exit Plans For Alternative Investments

Advanced studies in the context of risk exposure are becoming more and more necessary as interest in alternative investments grows. The risk-return characteristics of alternative investments differ from those of traditional asset types. To reduce risk, optimise profits, and prepare for liquidity, it is crucial to have an accurate understanding of the exit strategies that are accessible. Typical exit tactics consist of

Holding Period in advance

While some alternative investments provide early withdrawals, others have set holding periods. Make sure you are aware of any exit penalties and the holding period. For instance, there may be fines if you withdraw from a private equity fund before the five-year holding period has passed. So, to prevent unanticipated expenses and repercussions, you must understand the timeline.

Subsidiary Markets

It is possible for you to sell your investment interests before the holding term expires on exchanges or secondary marketplaces. Limited prices and liquidity, however, may not be advantageous. Let's say you purchase stock in a startup or private business. One possibility is to investigate a secondary market exit before the anticipated period expires. Before the tenure ends, you can sell your shares to a buyer who is willing to buy them.

Agreed Upon Exits

You can arrange an early departure with the manager or sell your interest in investments such as real estate or private equity to another investor. If you're planning to leave the property early, think about working with the property manager or another investor to negotiate the sale of your stake.

Partially Out

Throughout the term, a number of alternative investments consistently produce income or share profits. These may provide a limited amount of liquidity. As an investor in a renewable energy project, for example, you will periodically get returns during the venture. It provides you with some cash before the job is finished.

What Are Some Tips for Indian Investors Looking to Start with Alternatives?

There are certain steps an investor should follow before investing in alternative investments. Some of them are

There are certain steps an investor should follow before investing in alternative investments. Some of them are

It's crucial to conduct an extensive study on the investment opportunity and exercise due diligence before making any kind of alternative investment. Find more about the projected returns, the associated risks, and the investment structure. To assist you in making wise choices, you can also consult with financial advisors that focus on alternative investments.

Set clear investment goals

Establish your financial goals and the maximum amount of money you are willing to invest. This will assist you in selecting investments that are in line with your financial objectives. For example, you might invest in commercial real estate if you have an investment budget of Rs. 2-3 crores. However, you can still make an investment in fractional real estate with a lower budget of Rs. 50–75 lakhs.

Diversify your investments

Don't put all your money into one investment, just like you wouldn't with any other. Think about spreading your investment over two or three different asset classes. As an example, you may allocate 20% of your alternative investment fund to art, 60% to real estate in the commercial sector, 10% to private equity, and an additional 10% to peer-to-peer lending. This will guarantee that your hazards are taken care of.

Up to date with market developments

Stay informed on the most recent developments in the alternative investment space and industry trends. This can assist you in reaching your financial objectives and in finding new investment options.

How do you invest strategically in alternative funds in India?

Given the current state of the investing landscape and the erratic nature of the public stock and debt capital markets, achieving a moderate annual yield of 15% on the entire portfolio has become more difficult. Furthermore, the frequency of one-time events that result in large portfolio drawdowns has increased, making "volatility - the new normal" in our portfolios.

  • Investors allocate some portion of their portfolio to alternative assets due to a demand for products that are independent of the market and have reduced correlation and volatility. The percentage of the total portfolio allocated to alternative assets can range from 10 to 33%, depending on the risk tolerance and investor profile.
  • Large institutional investors used to utilise alternative investing strategies to hedge their portfolios, mainly allocating to private equity and real estate. The investor base for alternative assets has expanded, however, with the introduction of pooling vehicles such as Infrastructure Investment Trusts (InvITs), Real Estate Investment Trusts (REITs), and Alternative Investment Funds (AIFs).
  • Gold, hedge funds, private equity, and commercial real estate are examples of traditional alternative assets. These assets are essentially illiquid, with a three to ten-year investment horizon. Certain pooling arrangements, such as REITs and InvITs, offer co-ownership in asset portfolios related to infrastructure and real estate, are traded on public markets and offer liquidity.
  • Exchange Traded Funds (ETFs) are publicly listed investment vehicles that specialise in particular industries. These widely traded alternative assets offer investors daily liquidity and are highly favoured.
  • India has few options compared to developed countries like the US, Singapore, UK, etc., for liquid alternatives. Investors in India are becoming more and more interested in investigating private markets for real estate, structured finance, venture financing, and private equity, either by direct investments or through alternative investment funds.
  • Due to the formalisation of the economy, a number of these innovative concepts and themes, some of which are not available in publicly traded markets, have experienced notable expansion and increased market share.
  • Indian investors are eager to be part of some of these exciting new businesses that are outpacing India's economic growth and upending or supporting established business structures and industries.
  • Investors are beginning to realise that today's customers are changing their purchasing habits, with some shifting to online shopping in addition to offline buying. New-age companies expand more quickly as a result, and investors are vying for access to these innovative concepts.
  • In contrast to traditional private equity, the venture equity market has had a higher number of exits over the past ten years, which has increased investor interest.

The idea behind sophisticated and large investors' well-articulated private market investment strategies is to invest in venture equity and private equity alternative investment funds to establish a position in emerging sectors and niches and then use direct deal investments to double down on some of the most compelling ideas.

Investor protection and regulatory frameworks

By upholding openness, equitable procedures, and investor protections across investment options, regulatory bodies like SEBI and the Reserve Bank of India significantly influence the investment environment. Investor protection measures have the potential to foster trust and guarantee equitable opportunities for investors.

To safeguard the interests of investors, SEBI, the main regulator of the Indian securities market, has implemented a number of laws. These consist of corporate governance strengthening initiatives, insider trading laws, and disclosure and transparency rules. In the interim, the RBI oversees the credit market and guarantees the stability of the financial system for credit investments.

Growing Market for Alternative Investment Funds

Investors now have more options due to the development of credit, hybrid capital, and equity options in India. Investors are better equipped to make choices that fit their risk tolerance and financial objectives when they have a deeper grasp of these possibilities. To fully take advantage of the potential these new investment outlets bring, it is imperative to be updated about the shifting dynamics of India's investment landscape.

Through the use of technological innovations, regulatory safeguards, and pertinent data, investors in India can confidently traverse the dynamic realm of alternative investment funds. In an effort to increase diversification and yield higher returns, many investors are shifting to alternative investments as traditional investment vehicles such as stocks, bonds, and mutual funds continue to experience volatility and uncertainty.

Different Investment Options Available for Strategic Investment

A variety of asset classes, such as real estate, commodities, artwork, hedge funds, private equity, and commodities, are considered alternative investments in addition to typical stocks and bonds. However, it can be intimidating to navigate the world of alternative investments, particularly for individuals who are unfamiliar with them.

Private Debts

Lending money to organisations or people who are not publicly traded is known as private debt. Private debt can take many forms, ranging from mortgages on real estate to small company loans. Although it carries more risk, it can generate larger returns than conventional fixed-income investments. Investors must thus be prepared to carry out their due diligence and thoroughly assess the creditworthiness of borrowers, or they can choose to participate in a fund that carries out this process.

Collectables and Arts

Collectibles and art have long been regarded as alternative investments, as do rare coins and classic cars. Over time, these assets may yield good returns, but evaluating them requires specific knowledge and experience. Additionally, investors need to be ready to pay for costly storage and insurance for their collections. Several websites enable investors to make partial investments in pre-selected artwork from leading.

Venture Finance

Investing in early-stage businesses with the potential for rapid growth is known as venture capital. Considering that many firms fail to gain traction, this can be a high-risk, high-reward approach. On the other hand, profitable investments can yield large profits. Due diligence and a thorough assessment of the management team, market potential, and competitive environment are requirements for investors. Using a programme that invests in numerous independent startups with lower minimums is, in my opinion, the greatest method to investigate this asset class to diversify your risk and improve your chances of picking a winner.

Crowdfunding for Real Estate

Platforms for real estate crowdfunding enable investors to pool their funds for real estate initiatives. Everything from single-family residences to commercial buildings might fall under this category. Crowdfunding for real estate carries some risk because of market volatility and illiquidity, but it can also offer significant returns and diversification benefits. As a result, before making an investment, investors should carefully consider the reputation and track record of crowdfunding sites.

Investments in Infrastructure

Over time, investments in infrastructure, like toll roads and airports, can yield steady and predictable returns. Digital infrastructure, such as data centres and cell phone towers, can likewise be invested in as infrastructure. These assets normally generate a consistent income stream since they are operated under long-term contracts with governments or other organisations. Infrastructure investments, however, can be complicated and call for certain training and experience. Because of this, accredited investors can invest in a variety of infrastructure programmes through funds that aggregate their capital.

Managed Futures

Investing in futures contracts, which let investors wager on the price of commodities, currencies, or other assets in the future, is known as managed futures. Professional commodities trading advisers are usually in charge of managed futures funds, and they employ advanced quantitative models to find trading opportunities. Managed futures carry certain risks, including significant fees and volatility, but they can also offer enticing profits and diversification advantages.

Peer to Peer Financing

Peer to peer lending systems facilitate direct lending of capital by investors to individuals or small enterprises. These carry dangers, such as the possibility of borrower failure, but they can also offer enticing profits. Because of this, investors need to make sure that borrowers are creditworthy and spread their investments among a variety of loans.

Options Trading

Purchasing and selling options contracts, which grant the holder the right but not the responsibility to purchase or sell an underlying asset at a certain price, is known as options trading. Although it carries a significant risk and necessitates certain knowledge and experience, options trading can yield lucrative results. As a result, investors need to be aware of the possible drawbacks of options trading and be prepared to carefully manage their risk.

Various Types of Alternative Investment Strategy

In general, the most popular approaches to investing are

Growth Investing

The goal of growth investing is to choose businesses that, despite their seemingly high share price, are anticipated to develop at a faster rate in the long run. Smaller businesses, emerging markets, recovery shares, internet, and technology stocks are some examples of growth investment types.

Value Investing

This tactic depends on the market overreacting to both positive and negative news, which causes dramatic stock price swings that may not be consistent with a company's long-term perspective. When stock prices are low, investors buy it, and when they rise, they sell it.

Quality financial planning

The goal of quality investment is to identify businesses that have exceptional qualities, such as stable balance sheets or reputable management. Growth and value characteristics can both be found in a high-quality portfolio.

Investing index funds

Index investing, sometimes referred to as passive investing, is a strategy that focuses on assembling an asset portfolio with the goal of matching a market index's returns. The components of the chosen index will fully characterise the assets owned by the portfolio.

Buy and hold Investing

Buying stocks and holding them for a long time, often years, is the main goal of buy-and-hold investing to generate returns.

Advice for effective alternative investment planning

Alternative investment planning techniques have their own set of dangers and complications, but they can also present special opportunities. The following are some pointers to bear in mind while adding alternative assets to your portfolio

Carry out exhaustive research

It is essential to do extensive study and comprehend the underlying investment, its past performance, and the related dangers before investing in any alternative asset. This can assist you in avoiding potential errors and making well-informed judgements.

Diversify your alternative assets

Variety is crucial for both traditional and alternative investments, just as it is for traditional investments. To disperse risk and optimise possible returns, think about diversification among several asset classes, strategies, and managers.

Get expert guidance

Investing in alternative assets can be complicated, and understanding the market may call for the knowledge of a financial advisor or other investment specialist. Consult experts who are knowledgeable and experienced in alternative investment planning techniques.

Unleash the Power of Alternative Investment Strategy with Enterslice

A comprehensive range of alternative investments across many asset classes and strategies are available to qualified investors through Enterslice Alternative Investment Service. Consult your Private Wealth Advisor or Enterslice Financial Advisor to see how an alternate investment approach can bolster your portfolio.

To assist in meeting the needs of institutional and individual clients who want a unique solution, we provide customised frameworks. You may be at the core of all we do with a customised financial plan that incorporates our unmatched choice of goods.

We provide proprietary as well as third-party solutions. Our Global Investment strategies lead a thoughtful, thematic top-down approach that informs our fund selection process, which is driven by our size and dedicated to assisting you in finding the strategy that most closely matches your objectives, values, and risk tolerance.

This extremely selective method consists of thorough governance and oversight, continuous monitoring, business and operational assessment, and rigorous quantitative and qualitative analysis. From private equity to unconventional assets, the Enterslice team guides you through customised approaches, valuation and reporting requirements and ensures your portfolio thrives in dynamic markets.

Frequently Asked Questions

The term alternative investments encompasses a broad spectrum of investment products, such as government securities, public funds, stocks, and bonds, that do not fall under the traditional public securities category. Real estate, infrastructure, venture capital, private equity, private credit/debt, and tangible assets are examples of private, less regulated asset classes that are referred to as alternative investments.

Before investing, you should be aware of the manager's investment philosophy. This will provide you with some idea of the kinds of risks and returns to which you might be exposed, as well as the probable drivers of those returns. The relative benefits of active and passive investment, which are two popular investing philosophies, are hotly contested because they represent radically different understandings of how capital markets function.

To achieve the goals of investor portfolios, investment managers employ a variety of techniques or investment strategies. They are crucial in establishing the portfolio's potential risks and returns. An investment manager may employ a combination of styles and techniques and adjust their approach based on the state of the market.

When compared to standard funds, alternative investments can help investors diversify their portfolios with less risk. For novice investors, it's a simple method to get started, and it's not just for really wealthy people, HNIs, or institutions.

The sector that best suits their investment goals is considered the "top" sector. Since investing is a personal endeavour, it's critical to keep in mind that what works for one investor might not work for your portfolio. Get expert advice with Enterslice and make a strategic investment decision.

The most well known alternative investment is probably real estate. Real estate investments have the ability to appreciate in value as well as produce consistent cash flow. In general, there is little relationship between real estate and conventional assets like stocks and bonds. There are various ways to invest in real estate.

Using complex investment tactics like leverage, taking short positions, and utilising derivatives are all included in the category of alternative investing. Alternative strategies are typically non-conventionally managed and structured to hold a variety of classic and non-traditional financial assets.

You can begin accumulating wealth at any age or income level. The secret is to select the appropriate investments for you by taking into account the following factors

  • Your Schedule
  • Risk Tolerance Level
  • How much cash you possess?
  • How much help do you require?

 

If investors want to diversify their holdings and possibly increase their returns, alternative investing may be a suitable option.

Since a REIT (Real Estate Investment Trust) provides exposure to real estate without requiring direct property ownership, it is acceptable to classify it as an alternative investment.

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