Demystifying Alternatives
Key Highlights
- The market for alternative investments is large, complex, and ever evolving, as a consequence, there are understandably some commonly held misconceptions about the various asset classes under the alternatives umbrella.
- In this article, we will look to debunk some of these common myths and explain how alternative investments can serve as important portfolio building blocks for an increasingly broad spectrum of investors.
Myth 1: Alternative investments are all high-risk
Reality - Over the last few decades, alternative investments have gradually developed into a very broad spectrum of different asset classes with varying risk and return characteristics. While some asset classes such as private equity generally tend to deliver higher returns with higher risk, there are some asset classes such as multi-strategy hedge funds, core infrastructure equity and senior secured private credit that can be designed to deliver moderate risk-adjusted returns with relatively lower risk.
Myth 2: Alternatives are all highly illiquid
Reality - “Alternatives” as a terminology is often associated with asset classes such as private equity and venture capital investments with a decade-long investment horizon, probably because they are amongst the earliest types of private capital investments which originated in the 20th century. This has unsurprisingly given rise to a misconception that all alternative investments are highly illiquid. However, with the broadening of the alternatives universe into various asset classes over the past decades, the spectrum today can be broadly divided into three major buckets by varying levels of liquidity: namely liquid, semi-liquid and illiquid alternatives.
Myth 3: Alternatives are only available to institutional investors
Reality - Historically, alternative investments have primarily been only accessible to the most sophisticated investors. While institutional investors still account for the majority of commitments to alternative investments today, the continued evolution of the industry is bringing about a “democratisation of alternatives”, enabling private wealth investors, ranging from retail to high-net-worth individuals, to access a number of alternative asset classes.
Read our paper to find out more.