The investment returns of many “alternative investments” result from the fundamental performance of the underlying business or project versus the more general swings of the equity and bond (“fixed income”) markets. Alternative investments tend to offer “absolute” and “non-correlated” returns based upon issuer performance and are much less“market driven” (such as interest rate moving up and down in the bond markets or stock prices change in the equity markets) .
As such, many investors, both institutional and individuals who are looking to reduce their portfolios vulnerability to market movements they can’t control have increased their allocations to private alternative investments.
Public market investment has arguably increased
- Non-fundamental factors have had a dramatic impact on volatility and overall direction of public financial markets, such as:
- Hedge fund proliferation
- Algorithm-driven institutional trading
- High speed trading
- Global event impacts on domestic public markets
Uncorrelated or less-correlated returns
- Some alternative investment strategies offer an uncorrelated substitute to major public market indices, whether equity or fixed-income, thereby offering a diversified investment strategy.
Alternatives offer flexibility
- Current income or capital gains can be prioritized
- Tax efficiency
- Transaction structure
- Risk tolerance matching
- Industry selection