Alternative assets in retail portfolios


Major global equity indices – the S&P 500 (SPX), NASDAQ, STOXX Europe 600, MSCI EM and MSCI ACWI – have all fallen by double digits year-to-date. Meanwhile, bonds offer no salvation from the stock market bloodbath, as they too have sold off. There seems to be no place for retail investors to hide, at least in the “traditional” markets. No wonder more and more retail investors are looking for ways to enter the sphere of alternative investments.

Alternative democratization

Alternatives have been a popular diversification route for institutional investors and high net worth individuals for years; institutional investors allocate between 10% and 20% of their portfolios to alternatives. Today, thanks to growing demand, they are becoming more accessible to individual investors. Not only are the ways to invest in alternatives growing, but the alternative universe itself is much broader than it was just a few years ago.

source: Altsgomainstream

Previously, alternative investments meant either hedge funds, real estate, or private equity; now they also include managed futures, venture capital, non-OTC structured products, esports, cannabis, cryptos, crowdfunding, P2P lending, collectibles, art, l alcohol, third-party funding, NFTs, etc. The increase in the number of alternative asset classes requires expanding access to the retail money that would flow into them, and that’s what we’ve seen in recent years, with an understandable increase in interest following the 2022 bear market in traditional government assets.

Uncorrelated with the Fed and inflation

Traditional assets depend on movements in global markets, which are influenced by macroeconomic and geopolitical factors. Alternative assets have little to no correlation with stocks and bonds, making them attractive to investors, especially in turbulent times. Even in “normal” times, alternatives often have higher return potential than stocks and bonds.

Source: JP Morgan

On the other hand, alts are not publicly traded, which can make them less liquid and transparent. Alternatives often require higher minimum investments and cost significantly more to manage than traditional investments. Alts may involve the use of leverage and complex investment structures, which may present higher risks for investors. Additionally, while alternative investment returns are less influenced by general market trends, they are determined by the inherent strength of each investment, making understanding, analysis and evaluation even more important than with traditional assets – which is another barrier to entry for the unsophisticated investor. .

According to the latest report published by Preqin, the alternative data and research company, assets under alternative asset management (AUM) are expected to reach $23 trillion by 2026, up from $13.3 trillion at the end of 2021, retail interest fueling the next wave of industry growth. The CAIA Association (an organization of alternative analysts) predicts that alternative assets will represent 18% to 24% of the global investment market by 2025. The lack of products suitable for retail participation has been one major hurdles so far, but that’s starting to change as the industry innovates.

This innovation in the investment universe, like many others, is driven by fintech, i.e. the global fintech industry. The advancement of fintech provides the solutions to many of the caveats associated with investing in alts, such as cost, transparency, analytics, and more. Now, technology platforms allow individual investors to access the kinds of alternative investments that were previously only available to institutional investors and high net worth individuals.

Invest in a piece of a masterpiece

These platforms offer transparent alternative investments through multiple channels, including funds of alternative funds open to the retail public with split investment options. Many of them solve liquidity problems by providing access to the secondary market. Additionally, Fintech companies are disrupting the outdated processes of the traditional financial industry, leveraging new digitized and scalable technologies that enable a new level of efficiency, dramatically reducing costs and increasing transparency.

While crypto-asset platforms such as Coinbase (NASDAQ: CURRENCY), Binance, and others are widely known, at least in name, other types of alternative platforms often go unnoticed because there are regulatory restrictions on advertising private assets. However, for an investor searching online, there would be no difficulty in finding a platform for almost any asset he can think of.

Some platforms are designated for a specific asset, and some offer a wide range of alternatives (pun intended).

For example, for investors looking to diversify into alcohol investments, there are platforms such as Vinovest or Whiskeyvest, which offer individuals passive access to the portfolio of the best wines or whiskeys in the world. There are platforms like Collectable, allowing anyone to buy fractional shares of some of the most iconic items in sports history, or the PWCC platform for sports trading cards. By the way, this is not only fun for fans, but also a profitable investment, as the PWCC 500 index has outperformed the S&P 500 since 2008.

There are platforms that make it easier for individual investors to access farmland, such as FarmTogether, which offers crowdfunding investments in agricultural real estate. Other platforms, such as DiversyFund, allow retail investors to participate in REITs with much lower initial investment amounts than traditional real estate trusts.

For art lovers, there are ways to buy shares in masterpieces on platforms such as Masterworks and potentially make some money, as prices for contemporary art have appreciated every year at over 14% since the 1990s. Or, investors can trade even more contemporary works of art – NFTs – on OpenSea or other digital art asset platforms.

For gold bugs who don’t like the performance of the gold ETF, there is even a platform for investing in physical gold called Vaulted.

In addition to this, there are digital platforms where investors can fund startups or fund someone’s small business. Or, they can lend to businesses or individuals for interest.

Source: Nomura Connects

Diversify like a millionaire

Apart from the large number of designated platforms, there are also those that offer exposure to a number of assets. For example, Yieldstreet offers a variety of individual offerings covering assets such as cryptocurrency, artwork, private equity, real estate, and structured notes; the platform also has a fund holding these assets and offering shares to retail investors.

There are even kinds of “funds of funds” for alternatives that match the investment capabilities of individuals. As an illustration, the hedge fund Hedonova offers access to trading platforms for startups, NFTs, emerging markets, real estate, art, cryptos, and many other types of assets, at through its diversified portfolio.

source: Hedonova

Alternative assets provide investors with diversification, inflation protection and income independent of stock and bond market trends. Different types of alts offer different returns, which do not always entirely correspond to the level of risk taken by investors. As with traditional investments, it is highly necessary to understand and assess these risks. However, at times like these, it may be worth allocating a portion of your investment portfolio to assets that provide some sort of buffer against stock market crises.



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