When we discuss investing at OCN Group, we are generally referring to direct equities, bonds, or cash. These are the established investment tools for most individual or retail investors.
Beyond the usual, there is another category of investing that has typically been the domain of institutional and professional investors called Alternative Investments. These investments are certainly not appropriate for all investors, but they are becoming increasingly accessible to private or retail investors.
Alternative Investments have a wide range of different structures, and some are more accessible than others, but they also have some common characteristics:
- Not regulated in the same way as ‘traditional’ investments or by the SEC
- High illiquidity means they can be challenging to sell or convert to cash
- Uncorrelated to standard asset classes, so they do not follow the ups and downs of other asset classes as market conditions change.
While alternative investments share these common characteristics, they consist of a variety of different investing methods such as:
Private equity refers to capital investment made into private companies which are not traded on public exchanges such as the Nasdaq and include subsets including:
- Venture capital. Startup companies or those in early stages of growth
- Growth capital. Investing in the expansion or restructuring of mature companies
- Buyouts. When a company is sold or sells one of its divisions
Private debt refers to financing that is not made by banks or traded on public markets. Private debt is used by companies that need to generate additional funds to grow their business. The companies that issue the capital are known as private debt funds, and they generate their revenue by interest payments and the repayment of the borrowed funds.
Hedge funds use pooled investment funds and employ various strategies to generate returns for their investors using relatively liquid assets. Hedge fund managers can specialize in a range of skills to execute their strategies, aggressively manage, or utilize derivatives and long-short equity, to generate higher returns. This type of investment is exclusively available to institutional investors and high-net-worth individuals.
Items that you can physically touch or hold, such as property, land, collector cars, collectibles, or artwork, are some examples of Real Assets, with the most invested segment being real estate.
Commodities are also investments in tangible assets, typically natural resources, such as agricultural products, oil, natural gas, and precious and industrial metals. This type of investment is considered a hedge to protect against inflation since public equity markets do not determine their prices. The value of commodities is driven by volatility in the supply and demand chain for the underlying product.
Benefits of Alternative Investments
Alternative investments offer greater portfolio diversification and lower overall risk with the potential for higher returns. Alternative investments are taking an ever more prominent role in the investing arena and becoming more accessible to more types of investors.
For more detailed information, please contact OCN Group.