Alternative Investment Opportunities
Mutual funds, bonds and individual stocks have their places in most portfolios. But if you are open to other avenues for growth potential, alternative investments such as hedge funds and private debt might provide these benefits for your investment plan:
If this interests you, we can create a plan with alternative investment allocations as part of your overall investment strategy to unlock potentially significant opportunities.
From 1990 through the end of 2022, hedge funds have helped investors navigate difficult markets by experiencing significantly fewer negative months than equities.
Equities have experienced a much bumpier ride than hedge funds:
Source: MPI Stylus. Numbers indicate months with returns of less than -3%. Data based on historical performance from January 1, 1990, through December 31, 2022. Hedge funds are represented by the HFRI Fund Weighted Composite Index. Developed market equities are represented by the MSCI World Index.For illustrative purposes only. Index returns do not represent fund performance or the results of actual trading. Index returns reflect general market results; assume the reinvestment of dividends and other distributions; and do not reflect deduction of fees, expenses, or taxes applicable to an actual investment. Unlike most asset class indexes, HFR Index returns reflect deduction for fees. Because the HFR Indexes are calculated based on information that is voluntarily provided, actual returns may be lower than those reported. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.
Alternative investments, such as hedge funds, funds of hedge funds, managed futures, private capital, real assets and real estate funds, are not appropriate for all investors. They are speculative, highly illiquid, and are designed for long-term investment, and not as trading vehicle. These funds carry specific investor qualifications which can include high income and net-worth requirements as well as relatively high investment minimums. The high expenses associated with alternative investments must be offset by trading profits and other income which may not be realized. Unlike mutual funds, alternative investments are not subject to some of the regulations designed to protect investors and are not required to provide the same level of disclosure as would be received from a mutual fund. They trade in diverse complex strategies that are affected in different ways and at different times by changing market conditions. Strategies may, at times, be out of market favor for considerable periods with adverse consequences for the fund and the investor. An investment in these funds involve the risks inherent in an investment in securities and can include losses associated with speculative investment practices, including hedging and leveraging through derivatives, such as futures, options, swaps, short selling, investments in non-U.S. securities, “junk” bonds and illiquid investments. The use of leverage in a portfolio varies by strategy. Leverage can significantly increase return potential but create greater risk of loss. At times, a fund may be unable to sell certain of its illiquid investments without a substantial drop in price, if at all. Other risks can include those associated with potential lack of diversification, restrictions on transferring interests, no available secondary market, complex tax structures, delays in tax reporting, valuation of securities and pricing. An investment in a fund of funds carries additional risks including asset-based fees and expenses at the fund level and indirect fees, expenses and asset-based compensation of investment funds in which these funds invest. An investor should review the private placement memorandum, subscription agreement and other related offering materials for complete information regarding terms, including all applicable fees, as well as the specific risks associated with a fund before investing.
- Historically lower market correlation compared to traditional investments
- Less-extreme market cycle peaks and troughs
- Access to more investment opportunities
If this interests you, we can create a plan with alternative investment allocations as part of your overall investment strategy to unlock potentially significant opportunities.
Alternative Investments: Upside That Can Limit Downside Exposure
From 1990 through the end of 2022, hedge funds have helped investors navigate difficult markets by experiencing significantly fewer negative months than equities.
Equities have experienced a much bumpier ride than hedge funds:
Source: MPI Stylus. Numbers indicate months with returns of less than -3%. Data based on historical performance from January 1, 1990, through December 31, 2022. Hedge funds are represented by the HFRI Fund Weighted Composite Index. Developed market equities are represented by the MSCI World Index.For illustrative purposes only. Index returns do not represent fund performance or the results of actual trading. Index returns reflect general market results; assume the reinvestment of dividends and other distributions; and do not reflect deduction of fees, expenses, or taxes applicable to an actual investment. Unlike most asset class indexes, HFR Index returns reflect deduction for fees. Because the HFR Indexes are calculated based on information that is voluntarily provided, actual returns may be lower than those reported. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.
Alternative investments, such as hedge funds, funds of hedge funds, managed futures, private capital, real assets and real estate funds, are not appropriate for all investors. They are speculative, highly illiquid, and are designed for long-term investment, and not as trading vehicle. These funds carry specific investor qualifications which can include high income and net-worth requirements as well as relatively high investment minimums. The high expenses associated with alternative investments must be offset by trading profits and other income which may not be realized. Unlike mutual funds, alternative investments are not subject to some of the regulations designed to protect investors and are not required to provide the same level of disclosure as would be received from a mutual fund. They trade in diverse complex strategies that are affected in different ways and at different times by changing market conditions. Strategies may, at times, be out of market favor for considerable periods with adverse consequences for the fund and the investor. An investment in these funds involve the risks inherent in an investment in securities and can include losses associated with speculative investment practices, including hedging and leveraging through derivatives, such as futures, options, swaps, short selling, investments in non-U.S. securities, “junk” bonds and illiquid investments. The use of leverage in a portfolio varies by strategy. Leverage can significantly increase return potential but create greater risk of loss. At times, a fund may be unable to sell certain of its illiquid investments without a substantial drop in price, if at all. Other risks can include those associated with potential lack of diversification, restrictions on transferring interests, no available secondary market, complex tax structures, delays in tax reporting, valuation of securities and pricing. An investment in a fund of funds carries additional risks including asset-based fees and expenses at the fund level and indirect fees, expenses and asset-based compensation of investment funds in which these funds invest. An investor should review the private placement memorandum, subscription agreement and other related offering materials for complete information regarding terms, including all applicable fees, as well as the specific risks associated with a fund before investing.
