Alternative Investments for Volatile Markets
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Last year was tough for capital markets. A portfolio invested in stocks and bonds returned negative double-digit returns, while uncertainties rose around the globe. High inflation, higher rates, lower economic growth, and geopolitical tensions marked 2022 as a uniquely painful year.
But investments in a selection of private markets – also known as “alternatives” – reduced the volatility of portfolios. These investments are key in helping diversify risks while generating positive returns in different market scenarios.
But what exactly are alternative investments?
Alternative investments are private, non-publicly traded funds across different asset classes. These funds specialize in real estate, private credit, private equity, etc. Access to these funds allows investors to own long-term investments that create value in different industries. Within each of those asset classes, there are different fund profiles, hence different returns and investment terms. The key difference between a private and a publicly traded fund is liquidity. These funds primarily have less liquidity, allowing investors to only sell their participation on a monthly basis and are sometimes locked up for numerous years. They can also require higher investment minimums.