Alternative investments can complement a traditional
portfolio, giving investors access to markets or investment strategies that
are generally not easily available to individuals. The main types of
alternative investments are managed futures, hedge funds, private equity,
direct investments, and exchange funds.
- Managed futures and hedge
fund investments offer access to global financial and futures markets
through professional asset management. Within a diversified portfolio,
managed futures and hedge funds tend to perform out of sync with other
assets which often can increase portfolio returns while lowering
- Professional private
equity managers invest in late-stage venture capital or buyout
opportunities designed to tap the profitability of companies before
they become publicly traded.
- Direct investments allow
investors to participate, often for as little as a few thousand
dollars, in the direct ownership of income-producing assets formerly open
only to larger investorsin industries
ranging from real estate to energywhile
avoiding some of the risks normally associated with direct ownership.
- For investors with
large concentrated stock positions, very often with a low cost basis,
exchange funds provide access to diversification by exchanging a single
stock for a professionally managed portfolio. Because of the way an
exchange fund is structured, the swap of one stock for a portfolio of
stocks is not considered a taxable eventgiving
the investor diversification without capital-gains taxes.
It is important to note that alternative investments
carry with them specific investor qualifications, which can include income
and net-worth requirements as well as relatively high investment minimums.
For that reason, they are generally reserved for our most sophisticated and
affluent clients. Additionally, these types of investments are often
offered only by prospectus or offering memorandum. These documents help
highlight the costs and risks associated with the investment.
For more information on how alternative investments
can help you reach your financial goals, contact your Financial Consultant.
Analysis of Hedge Fund Return/Risk Characteristics" - Van Hedge
Fund Advisors, Inc. & Vanderbilt University
Diversification Opportunities - Managed Futures" - Chicago Board
of Trade (2002)
- "On the
Performance of Alternative Investments: CTAs, Hedge Funds, and
Funds-of-Funds" - Bing Liang, Case Western University - Weatherhead School of Management (April 2003)