As its name suggests, alternative investments are those investments that are outside of what may be considered as ‘traditional’ or asset classes, or ‘bricks and mortar investments’.
According to the World Economic Forum, “alternative investment assets are those which are not part of traditional asset classes such as cash, stocks, or bonds that retail investors are most familiar with. Such a definition would encompass investing in mainstream assets such as real estate or commodities or luxury goods such as art or wine”[1].
Alternative investments encompass a wide range of asset classes, including private equity real estate and private equity infrastructure funds, secondary funds, and private debt funds. In particular the three asset classes: private equity buyouts, hedge funds, and venture capital have historically played the most important role in the evolution of the industry and have accounted for the vast majority of the capital allocated to alternatives.[2]
With such a definition in place, one could consider an alternative investment to be almost anything outside of the traditional investment assets mentioned, however, as figure 1 outlines from the same source, they are anything but investing money into simply anything.
Figure 1: Overview of different types of investments
When placed into the five strategic investment segments as outlined in figure 1.1, there is clearly a core competitive advantage identifiable with ‘alternative asset classes’, rather than the ‘traditional, tangible and other investment classes as a whole.
That being said, it must always be remembered as an investor, based on your level of risk tolerance, your access to capital that can be readily spent on investing, not to mention your skills and market experience, different asset types would – including non-traditional asset classes – offer significant opportunities to investors under the right expert advice or guidance.
[1] World Economic Forum (2015), “Alternative Investments 2020, An introduction to Alternative investments”, July 2015
[2] World Economic Forum (2015), “Alternative Investments 2020, An introduction to Alternative investments”, July 2015