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