diversify your investment portfolio. Through investing in a variety of different real estate markets, you can lower your overall risk of losing everything and increase your chances of higher long-term returns. Additionally, alternative investment ventures also play a crucial role in the diversification of your investment portfolio.
An alternative investment is a financial asset that is not categorised in any one of the conventional investment categories which include stocks, bonds, and cash. Alternative investments include private equity or venture capital, hedge funds, managed futures, commodities, and real estate.
“ Today’ s global investment climate calls for a shift beyond the traditional understanding of diversification.”
Alternative investments can provide an interesting opportunity for investors to diversify their portfolios, dampen the impact of market volatility and help them achieve their long-term investment objectives, even during times of market uncertainty. Alternative investment ventures are more than one, in fact, there are a myriad of these ventures, all with different attributes.
Private Equities According to tech incubation and venturing firm, Venture Choice, private equity is categorised as an " alternative investment ", comprising a variety of investment techniques, strategies and asset classes that are complimentary to the stock and bond portfolios traditionally used by investors.
In simple terms, private equity is a broad category that refers to capital investment made into private companies, or those not listed on a public exchange.
The fundamental reason for investing in private equity is to improve the risk and reward characteristics of an investment portfolio. Investing in private equity offers the investor the opportunity to generate higher absolute returns whilst improving their portfolio diversification.
According to a study by the South African Venture Capital and Private Equity Association( SAVCA) and the Development Bank of Southern Africa( DBSA), private equity:
• drives good corporate governance.
• Is valued for its strategic guidance.
• supports capital expenditure, expansion plans and innovation.
• Is a driver of B-BBEE transformation.
• Businesses reported notable employment gains during the private equity partnership
Benefits The main advantages of investing in private equity include:
• Higher returns
• Long-term growth potential
• The ability to gain exposure to the real South African economy; and
• Reduction in portfolio volatility
• Extensive due diligence
Hedge Funds A hedge fund is an unregulated alternative investment vehicle that uses a wide selection of strategies and financial instruments to achieve strong returns independent of market performance.
In simple terms, in a hedge fund, a group of investors come together to invest in the market. They raise money or provide the initial funds themselves and hope to
14 MAY 2021 SA Real Estate Investor Magazine