Simple Explanation of Alternative Investments

Posted by John Smith on February 16th, 2019

Due to the currently low-interest rates for traditional investments, more investors are focusing their attention on alternative investments. These often attract with high returns, but investors should always keep an eye on the risk.

Only those who are familiar with the respective investment forms and weigh the opportunities with the risks can make good use of alternative investments for their custody account. The range of alternative investments is vast, ranging from renewable energies to real estate, sports or the arts.

Alternative Investments - Depositor Options:

Private equity alternative investmentsinclude all investments outside the traditional forms of investment such as call money, time deposits, shares, bonds or funds. A precise definition of which investments are considered alternative investments does not exist. Generally, it includes hedge funds, venture capital & private equity, infrastructure, real estate, commodities and managed futures. There are also a number of other investments, such as art, sports, jewelry, antiques or vintage cars.

Which asset classes are there for alternative investments?

Hedge funds:

Hedge funds are investment funds where the money is invested in particularly risky and multi-layered strategies. In order to generate a profit, complex risk management systems are used. These include, for example, leverage products and short positions, which can be used to make a profit even when prices are falling. In classical strategies, on the other hand, long positions are primarily used.

Private equity alternative investments:

The term private equity can be translated with over-the-counter equity. Private or institutional investors have the opportunity to acquire shares of reputable companies. Subsequently, investors are involved in the company's success.

If the capital is invested in young and unknown companies, one also speaks of risk or venture capital or venture capital. The potential return is higher here with correspondingly greater risk.

Infrastructure investments:

Another option is to invest capital in the infrastructure. A distinction is made between economic and social infrastructure. The economic infrastructure mainly includes transport and transportation, energy, renewable energy, and telecommunications. Social infrastructure includes education, cultural institutions, hospitals, and care facilities.

There are also other distinctions in infrastructure investments. Greenfield projects are referred to as replanning and the investment does not relate to existing infrastructure. In contrast, Brownfield projects build on existing infrastructure.

Real estate:

Anyone who invests in real estate hopes to achieve a return by renting, leasing or reselling. Investors can either invest directly in property or invest their money through a real estate fund. Such funds invest the money mostly in commercial real estate or larger private rental projects.