Alternative Investments

Alternative investments reside beyond traditional investments such as stocks, bonds and cash. Tellingly, the majority of alternative assets are held by large institutions and high net worth individuals. The most common alternatives include real estate investment trusts, hedge funds, managed futures, private equity, venture capital and limited partnerships. Most investments in alternatives are made because the category’s returns usually have a lower correlation to standard investments. Alternative investments make up more than half of the allocation in many large university endowment funds.

Endowment Asset Allocations for Fiscal Years 2013 and 2014

  Fiscal Year
Asset Class 2013 2014
Domestic equities 16% 17%
Fixed income 10% 9%
International equities 18% 19%
Alternative strategies 53% 51%
Short-term securities/cash/other 3% 4%
Source: National Association of College and University Business Officers.

Real Estate Investment Trusts (REITs)
A Real Estate Investment Trust is designed to own and operate income producing real estate properties. Because of their tax structures, Reits are required to pay out 90% of their income to investors. Like other corporations, Reits can be publicly or privately held.

Hedge Funds
A hedge fund is open to a limited (Accredited and Qualified) investors. The term “hedge” has come to be applied to many funds that seek to offset potential losses using a variety of methods such as short selling. The benefits of such investment vehicles include lower correlation, specialized expertise and targeted absolute returns. There are a variety of strategies including long-short, global macro, distressed debt and merger-arbitrage, among others.

Managed Futures
This asset class is comprised of money managers who direct investments in the global currency, interest rate, equity, metal, energy and agriculture markets. They do this through the use of futures, forwards, and option contracts. Specifically, managed futures focus on using long and short positions in futures contracts, government securities and options contracts. Potentially, they can enhance portfolio returns and smooth volatility since they have shown low correlation to equity markets.

Private Equity
Private equity includes equity ownership in operating companies that are not publicly traded on a stock exchange. The most common investment strategies include leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.

Venture Capital
Venture Capital represents a type of private equity capital typically provided to early-stage, high-growth potential companies in the interest of gaining a return through sale or IPO of the company. Investments are generally made in cash in exchange for ownership shares in the company.

Disclosure: This is intended for informational purposes only. Investments in alternative investments are not suitable for all investors. Investments in any security may involve a high degree of risk and investors should review all “Risk Factors” before investing. The information contained herein is not an offer or a solicitation related to the sale of any securities. Such an offer or solicitation can be made only to qualified accredited investors through a prospectus or private placement memorandum, which is always controlling and supersedes the information contained herein in its entirety. As with any private placement investment, there are various risks including, but not limited to: complete loss of principal, limited liquidity, limits on management control of the assets, tax status, risk, fees and expenses. Past performance and/or forward looking statements are never an assurance of future results. Individual risks apply and returns are not guaranteed.

Hyde Park Wealth Management nor SANDLAPPER Securities, LLC provide tax or legal advice and you should consult your accountant and/or attorney if considering an investment of this type. Securities offered through SANDLAPPER Securities LLC, member FINRA/SIPC and Advisory Services offered through Sandlapper Wealth Management, LLC, an SEC Registered Investment Advisor. Hyde Park Wealth Management and SANDLAPPER Securities/Sandlapper Wealth Management are not affiliated companies.