Glossary - Alternative Investment
Alternative investments refer to financial assets that do not fall into the conventional categories of stocks, bonds, or cash. These investments include a wide range of assets like real estate, hedge funds, private equity, commodities, and tangible assets. The key characteristic of alternative investments is their lack of correlation with standard investment assets, offering diversification benefits and different risk and return characteristics.
Also known as
- Non-traditional investments
- Non-conventional investments
Use cases examples
- Private Placement Memorandum: The fund specializes in alternative investments focusing on private equity and commodities trading to capitalize on market inefficiencies and generate alpha.
- Partnership Agreement: The partnership hereby agrees to allocate up to 30% of its capital towards alternative investments, including hedge funds and real estate investment trusts (REITs), to diversify its portfolio and mitigate risk.
Considerations for investors
- Due diligence is vital due to the complex nature and less transparency of alternative investments compared to traditional securities.
- Consider the fee structures of alternative investments, which can be significantly higher, including performance fees on top of management fees.
Considerations for founders
- Understand the liquidity constraints and longer holding periods commonly associated with alternative investments.
- Evaluate the regulatory environment, as investing in or offering alternative investments might subject the company to different regulatory frameworks across jurisdictions.
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