Amir Baluch is the founder of Baluch Capital, which offers a range of alternative investments with above-market risk-adjusted returns.
As someone who works specifically with alternative investments, I’ve seen how they continue to appeal to individual and institutional investors alike. Based on my experience, there are a few investment classes that I believe will be or continue to be popular categories this year.
Understanding these is of twofold importance for business owners. Firstly, it can help you determine if you are in the right space to attract more investment this year and on attractive terms. Secondly, it may provide some food for thought when choosing where to invest your own personal or corporate funds.
What Are Alternative Investments?
Alternative investments are considered asset classes outside of traditional cash, bonds and publicly traded stocks.
This term should perhaps be updated, given how much investors of all types and sizes have been investing in alternative investments. These investors include some of the world’s largest endowment and sovereign funds—many of whom have weighted their portfolios in favor of what has been dubbed alternatives.
This runs the gamut from private stocks and debt to venture capital, crypto, wine, art and luxury watches. Even precious metals and gems may be considered alternative investments or “alts.”
The Top Alternative Investment Sectors
Many investors and commentators on the markets are split on whether we’ve already passed through the recession or if another one is looming. The latter group includes the world’s largest fund manager, Blackrock, which is forecasting a downturn like no other.
Given the S&P 500 has not been faring well already, more investors are urgently seeking alternatives. Though it always pays to have a well-diversified portfolio, depending on the phase of the cycle we are in, I always recommend anywhere from 30% to 70% of your portfolio in alternatives.
When deciding what to invest in, or whether your industry will be affected, these are some of the top trends in alternative investment I’ve witnessed gain steam:
1. Merchant Debt/Factoring
These are types of business loans. Specifically, they are loans providing funds to established companies that have a track record of cash flow and financial performance. As an investment, which is typically done through a fund or lender, it is effectively buying or loaning against future cash flows into a business.
The borrowing entity gets money to use as working capital or to expand faster up front. They give up a percentage or regular repayment to lenders as the money flows into their company.
A pro for investors is that these can include attractive yields, which may be directly or indirectly linked to underlying business assets.
Of course, no business is guaranteed to survive. So, to avert the cons of borrowers failing to make good, it is important for investors to invest through an intermediary with low default rates and with a broad enough portfolio so that the performers outweigh any defaulters or delinquent payments.
2. Private Equity Healthcare Investments
From telemedicine to biotechnology, to cannabis, this space is exploding, especially in the wake of Covid. It is perhaps one of the best areas of growth for those seeking more upside in their portfolios.
There are a variety of ways to get involved in this asset class, from angel investing to investing through pre-IPO funds or VC and private equity firms.
The most obvious con is that not every one of these companies will make it in the end. The process of bringing new technology to market, and through all of the regulatory hurdles in this space, can be lengthy. Investors can offset this with a portfolio of these companies, investing in a variety, including ones with more growth potential and less risk.
This is an investment that can be incredibly impactful on the world and give investors a feeling of making a difference while also generating attractive returns.
3. Artificial Intelligence
AI investments continue to be trending. This can apply to investing in next-generation, AI-powered funds that analyze the market and invest for you. Automated, AI-backed investing can help take the headaches and time drain out of investing and more accurately invest based on more data points than any human team could possibly evaluate.
There is huge potential for growth in AI startups that are successful. This is why many of the largest VC funds and notable angel investors have been going big into this sector. Of course, if you don’t understand these technologies, it may be hard to judge which will make it or not.
4. Real Estate
Real estate has long been one of the most popular alternative investments. While it may not make the top three this year due to interest rate trends and a cooling of peak home prices, this is still an asset class that can provide concrete downside protection and passive income.
In fact, I believe flight capital from traditional investments and crypto may help provide real estate with an extended run.
5. Ancillary Trends
There are also creative and niche ways to invest around these trends or combine them as well.
For example, you could invest in medical real estate like lab space and medical offices. You could look into Bitcoin ATMs instead of crypto. Ancillary investments could be raw materials and infrastructure used in other popular asset classes.
Alternative Investing For Business Owners
If your business falls into one of the above categories, it could be a great time to benefit from this capital or financing. If it does not, then you may want to consider the impacts of a tighter credit and capital market on your business over the next couple of years.
Overall, these alternative investments can help you diversify from having everything in your business. You don’t want all of your eggs in one basket.
I see alternative investments as continuing to gain traction. In fact, some should perhaps no longer be dubbed alternatives at all. But when it comes to investing in alternatives, it is most important to choose those not correlated to equities (publicly traded stocks) and to maintain balance in your portfolio for growth, income and asset protection.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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