Alternative investments, as one can assume from the name, are meant to serve as an alternative (substitute) to investment in the traditional routes we all know; most of our products are managed there, in the capital market – shares, bonds, stock options, derivatives, ETFs (exchange traded funds), training funds, pension funds, and senior employees insurance. Thus, alternative investments are investments in private equity, and are not traded in the capital market: hedge funds, infrastructure, real estate, private equity abroad, and other fields such as person-to-person loans, pharma, and Fintech.
Alternative investments are usually used for hedging risks and increasing the stability in our overall (pensionary and financial) portfolio, since, as opposed to traditional investments, they are less vulnerable to speculations, price evaluations, and supply and demand – and thus, and most importantly, they are less volatile. Since there is a low correlation between alternate and traditional investments, it is clear why the former is considered the preferred tool for hedging the portfolio.
Essentially, an alternate investment is an investment that takes place outside the capital market, and it is much more complicated and complex than it seems from the outside.
Over the past few years, as people’s financial understanding has grown, investors want their investments to be independent from the traditional capital market, and look for the term “alternative investments.” However, there is a wide dispersion within this type of investment and a great variety of investment options, for different investment populations and with different risk levels.
Most investments take place outside the banking system or the insurance companies; these investments include Israeli real-estate, real-estate abroad, consumer credit, Credit for real estate developers, (Maznin loan) Entrepreneurial initial capital loan, and crypto coins.
There are several reasons to use alternative products:
- A wide dispersion of risk.
- Independence from the capital market’s performance.
- High revenue potential.
- Non-tradable for a certain period, which reduces the vulnerability to the goings-on in the traditional capital market.
However, when one considers alternative investments, they must do so carefully. As opposed to tradable investments, whose trading is based on published prospectus and extensive information that companies are required to publish, alternative investments are less transparent, and must thus be examined carefully.
For more questions and for solutions in regards to alternative products, contact us at Sparta-capital.