Alternative Investment Basics

A primer on the common characteristics and fundamental aspects of alternative investments: what they are, how they differ from traditional investments, and why investors should consider them.

Alternative Asset Classes

There are several different asset classes of alternative investments. We define the basic elements of a hedge fund, available strategies, and the four main categories of private capital: Private Equity, Venture Capital, Secondary Funds, and Private Debt. We analyze Real Estate on three levels—core, value added, and opportunistic—and similarly focus on four classifications of natural resources—energy partnerships, timberland, commodity indexes, and active commodities.

Collecting Quality Partners Opportunistically

This is the first principal of building a successful portfolio of alternative investments. What is quality? Why does quality matter? How do we find and retain quality managers? We explain the fundamentals and significance of quality, as well as some imperative practices to achieve it: listening to and learning from our managers, a contrarian approach when it is appropriate, and innovation.

Risk Management is Key to Success

There are three key concepts to consider in the analysis of the second fundamental principal of building a successful portfolio of alternative assets. Firstly, diversify among asset classes, strategies, and managers. Secondly, maintain enough liquidity to stay the course. Finally, accept and plan for the eventuality that we are wrong. A sophisticated investor understands how to manage risk in decision-making, at the portfolio level, and as a feedback loop.