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What are Alternative
Investments?
According to the CAIA Association, alternative investments are
often defined not by what they are, but by what they are not. That
is,
an alternative investment is a position in something other than a
long position in either equity or debt.
Generally speaking,
the alternative investment markets encompass hedge funds, venture
capital and private equity, real estate, and managed futures.
Alternative investment securities
include positions that define investment strategies within these
broad groupings. As defined, alternative assets are a subset of existing asset classes. For example, a hedge fund may be organized as a private company that takes both long and short positions in equity securities, seeking to expand the investment opportunity set available to long-only equity managers. These opportunities include capital appreciation, hedging, and diversification, among others. Other distinguishing characteristics of alternative investments are the regulations that surround the positions that comprise these strategies, and the way that the gains and losses of these positions are taxed. To learn more: www.caia.org/ai --------------------------------------------------------------------------------------------------------------------------------------------- According to Investor Home, alternative investment is a term typically used by investors to describe investments other than stocks and bonds. Strategies commonly classified as alternative investments include private equity, leveraged buy-out (LBO) funds, arbitrage strategies, hedge strategies, and "event driven" strategies. Some people also classify real estate and venture capital in the alternative investment category. The benefits of alternative investments include potentially higher returns, reduced volatility, diversification benefits resulting from low correlation with other investments, and in some cases more liquidity than some other investments like real estate and venture capital. Alternative investments are often considered by institutional investors as alternatives with potentially less risk than investments in venture capital, commercial real estate, distressed securities, and junk bonds. The drawbacks include potential one time losses from rare events and high management fees. While many institutional investors allocate a small single digit percentage of their assets to this class, some funds have been more aggressive and have achieved favorable returns from larger allocations to alternative investment. To learn more: www.investorhome.com/alternat.htm -------------------------------------------------------------------------------------------------------------------------------------------- Best Alternative Investment Books ---------------------------------------------------------------------------------------------------------- |
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