Alternative investment management is becoming increasingly popular as many investors search for diverse assets to complement their current portfolio of traditional investments in stocks, bonds, and mutual funds.
The idea is to diversify your portfolio in different sectors, products, industries and other investment opportunities you believe in. A well-diversified portfolio can help protect your wealth in the event that our markets rollercoaster, inflation supersizes and other volatile variables disrupt the economy.
Continue reading to learn more.
What is Alternative Investment Management?
Alternative Investment Management is when you, and/or your registered investment advisor or fund sponsor strategically invest in atypical, non-traditional assets that potentially can return an array of diverse economic and tax benefits to you that traditional offerings like stocks, bonds and mutual funds do not offer.
These alternatives may include investing in an array of categories including, but not limited to private equity, commercial real estate single-assets & funds, hedge funds, venture capital, digital assets and more.
However, many alternatives offer their own unique benefits and risks too.
Benefits of Investing in Alternative Assets
Non-traditional assets can generate unique return profiles and other potential benefits that traditional offerings cannot give you. A few benefits includes:
- The potential to earn higher returns compared to traditional investment offerings.
- Increased portfolio diversification can help keep your estate planning goals on track, even during times of inflation and volatile markets.
- Access to investment opportunities that would otherwise be unavailable to most people due to various financial, deal size, complexity, length of holding and other investing constraints.
Risks of Investing in Alternative Assets
Investing in non-traditional assets carries a set of risks that you should consider too. These risks may include:
Higher Volatility: Depending on the alternative asset class, non-traditional investments can experience higher levels of volatility compared to their traditional asset counterpart. This means that the prices of alternatives can fluctuate greatly over short periods of time. Investing in cryptocurrencies is an example of an extremely volatile asset.
Illiquidity: As noted earlier, many alternative investments have more complex deal structures and/or longer holding periods, making them harder to sell off quickly if you need access to cash-on-hand.
Valuation Risk: Valuing certain alternative assets can be difficult due to the illiquidity of some markets or because the price of an asset may be based on subjective or uncertain factors.
Regulatory Risk: Regulations can change regularly, and some alternative investments such as those in digital assets are subject to various regulations depending on the jurisdiction they are operating in.
5 Popular Alternative Investment Management Strategies
There are different styles of investment management strategies you can pursue, but a few of the more popular tactics today include:
Value Investing involves buying undervalued assets regardless of current market conditions; the goal here is typically to obtain long-term capital appreciation rather than immediate profits.
For example, you may invest in a qualified opportunity zone (QOZ) because it provides niche tax advantages for investing in low-income, underprivileged communities designated by the IRS. The idea is that over time, these communities will flourish as more employers, businesses and people populate the designated area.
QOZs can provide significant tax advantages to you such as deferring capital gains taxes and reducing the taxable income from investment. Additionally, you may benefit from long-term capital appreciation, capital gains deferment and reduced taxable income on your investment if you hold your investment for at least 10 years, and follow certain other criteria set forth by the IRS.
Growth Investing aims to achieve long-term gains by focusing on alternative assets with advantageous revenue growth prospects.
For example, development properties are those that are in the process of being built or renovated and, if done correctly, can yield high returns for investors. These investments can often be made at lower entry costs than fully developed residential or commercial properties and can potentially provide you with higher capital returns as the property is developed, leased, and/or disposed of.
Strategic Investing involves investing in specific assets to achieve a long-term goal or solve a problem.
For example, you might invest in CRE properties that are strategically located near major highways or airports. By doing this, you can potentially benefit from higher rental rates due to the convenience and easy accessibility traits the location provides. Additionally, owning CRE properties near key transportation hubs can potentially offer you numerous capital appreciation opportunities over time as property values increase.
Leveraged Buyouts, when liquidity exists, allow you or your fund sponsor to acquire entire companies at discounts based on debt ratios that can create significant value later after the deal is completed.
For example, you might purchase a distressed property needing renovation and other maintenance fixes, such as an old multi-family apartment community or hotel property. Hypothetically, you can take on the debt of an asset from an existing owner to utilize their equity to fund the much-needed renovations. Once these renovations are completed, the property can be sold or rented out at a much higher value than what was originally purchased.
This strategy can help you create capital appreciation without having to invest large amounts of your own capital upfront. Leveraged buyouts provide a great way for experienced CRE investors to capitalize on potential investments with minimal upfront investments while still achieving large potential returns down the line.
Arbitrage Strategies involve simultaneously taking opposing positions within different markets aiming to capitalize upon any potential discrepancies between prices.
An example of this in CRE is purchasing a property with the intention of reselling it at a higher price later. This involves the investor buying an undervalued property, such as one located in an area that is undergoing gentrification, and then waiting for the area to become more desirable before selling it off at a higher cost.
In conclusion, there are many different investment management strategies you can try out if you’re interested in investing in non-traditional assets. The opportunities and types of assets you can invest in might range from lower risk/return approaches, like value investing, up to higher risk/more reward scenarios like deploying leveraged buyouts and arbitrage maneuvers. Ultimately, your investment success depends on understanding your investment goals and ensuring you’re doing careful due diligence on every asset before committing any capital to it.
Accepting Investments Now:
Watch: Caliber Opportunistic Growth Fund III
Watch: Caliber Qualified Opportunity Zone Fund II
Click here to review our assets.
Caliber is a leading vertically integrated asset management firm whose primary goal is to enhance the wealth of investors seeking to make investments in middle-market assets. We strive to build wealth for our investor clients by creating, managing and servicing proprietary products, including middle-market investment funds, private syndications, and direct investments. Our funds include investment vehicles focused primarily on real estate, private equity, and debt facilities. We market our services through direct sales to private investors, wholesaling to investment advisers, direct sales to family offices and institutions, and in-house client services. Caliber’s middle-market specialty allows the Company to compete with agility and speed in an evolving arena of alternative investments. Additional information can be found at Caliberco.com and CaliberFunds.co.
Click here to see Caliber’s current property portfolio.
If you would like to speak to someone about diversifying your retirement accounts, contact us at [email protected] or call (480) 295-7600 to schedule a call with a member of our Wealth Development Team.
If you would like to learn more about Opportunity Zone Investing, Caliber has put together a special guide that cuts through the myths and misconceptions and outlines the benefits, the risks, and the upcoming deadlines you must know to be able to participate. Get access to the guide here.
The information contained herein is general in nature and is not intended, and should not be construed, as accounting, financial, investment, legal, or tax advice, or opinion, in each instance provided by Caliber or any of its affiliates, agents, or representatives. The reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances, desires, needs, and requires consideration of all applicable facts and circumstances. The reader understands and acknowledges that, prior to taking any action relating to this material, the reader (i) has been encouraged to rely upon the advice of the reader’s accounting, financial, investment, legal, and tax advisers with respect to the accounting, financial, investment, legal, tax, and other considerations relating to this material, (ii) is not relying upon Caliber or any of its affiliates, agents, employees, managers, members, or representatives for accounting, financial, investment, legal, tax, or business advice, and (iii) has sought independent accounting, financial, investment, legal, tax, and business advice relating to this material. Caliber, and each of its affiliates, agents, employees, managers, members, and representatives assumes no obligation to inform the reader of any change in the law or other factors that could affect the information contained herein.