Alternative Investments

Its common knowledge that a well-developed investment strategy should allocate to a wide variety of assets in order minimize systemic risks across the investment portfolio. However, correlation between markets of different countries is high, especially during downturns. Therefore, allocating to solely traditional assets (stocks and bonds) cannot provide a high level of portfolio diversification.

Non-traditional or alternative assets actually provide returns that are uncorrelated with world stock and bond markets. Alternative investments are an additional means not only to improve the diversification of assets, but also to create a qualitatively different structure of the portfolio, which helps increase overall revenue potential.

Even though a variety of alternative investment exist, they have some common properties which should be taken into account when deciding which to include in an investment portfolio. An important feature is the liquidity of the asset. Many alternative assets demand long-term ownership of the investment, which can be 5-10 years or more. Illiquidity comes with assets that is not widely sold on an open market. Certain real estate investments are often a good example.

Alternative investments cover a wide range of options for investment including all sorts of real assets, such as water, real estate, commodities (futures), trade finance, and even cryptocurrencies.