Last year was tough for capital markets. A portfolio invested in stocks and bonds returned negative double-digit returns, while uncertainties rose around the globe. High inflation, higher rates, lower economic growth, and geopolitical tensions marked 2022 as a uniquely painful year.
But investments in a selection of private markets – also known as “alternatives” – reduced the volatility of portfolios. These investments are key in helping diversify risks while generating positive returns in different market scenarios.
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But what exactly are alternative investments?
Alternative investments are private, non-publicly traded funds across different asset classes. These funds specialize in real estate, private credit, private equity, etc. Access to these funds allows investors to own long-term investments that create value in different industries. Within each of those asset classes, there are different fund profiles, hence different returns and investment terms. The key difference between a private and a publicly traded fund is liquidity. These funds primarily have less liquidity, allowing investors to only sell their participation on a monthly basis and are sometimes locked up for numerous years. They can also require higher investment minimums.
Read the full article here by Nestor Hernandez, Advisor Perspectives.
