Alternative investments in Australia cover a unique and diverse range of investment opportunities, including private credit, private debt, real estate, infrastructure, liquid alternatives, and managed funds. For investors, alternative investments exist to help enhance returns, increase portfolio diversification and provide a level of downside protection. A full run down on the benefits of alternative investments in a diversified portfolio can be seen here.
Misconceptions about alternative investments in Australia
With tighter monetary policies impacting traditional asset classes and reducing returns, many investors are now considering adding alternative investments to their portfolios. Despite an increase in interest, investors can often be put off by reading bad press, that at times, gives alternative investments a somewhat ‘shaky’ image. As with any investment it is wise to consider and evaluate any misconceptions prior to making a final decision. It is also important to remember that all investment types include both risk and reward.
Some of the common misconceptions about alternative investments
They are new types of asset classes
A common miss truth is that all alternative assets and investment vehicles are new. Whilst it is true that some classes of alternative assets are new (e.g., cryptocurrency), many alternative investments have existed since the 1940’s with the introduction of hedge funds.
Alternative investments are risky
Whilst it is true that alternative investments in Australia have unique characteristics and can be risky depending on the asset class and investment strategy, they also are very useful to mitigate risk and reduce volatility when incorporated into a diversified portfolio.
Alternative assets often utilise unique strategies and exposures such as leverage, shorting and derivates. By nature, these non-traditional investment options and strategies can be more complex and involve higher risk, but in fact, are designed to provide better risk-adjusted performance than many traditional investments. The theory of allocation with alternatives is that they are uncorrelated with mainstream asset classes such as shares and bonds. What does that mean for investors? When these two asset classes (share and bonds) are underperforming, alternative investments will keep an investment portfolio on track and deliver returns through downturns. They can also be defensive and help to preserve capital in addition to giving a new avenue of growth.
Alternative investments are illiquid
One common misconception and trap investors fall into is thinking that all alternative investments are illiquid. The level of illiquidity is dependent on the alternative asset class and the underlying investment strategy. Yes, some classes of alternative assets by nature are more illiquid and have longer lock-up periods but this isn’t true in all cases. Alternative investment managers often offer tailored investment vehicles that invest in alternative assets that have much lower levels of illiquidity. It is also important to understand that the level of illiquidity in most instances is balanced by higher returns. This is often called an ‘illiquidity premium.’
Alternative investments are hard to access
Early on many alternative investments were only accessible to institutional investors and were often not available to mainstream investors, including wholesale and retail customers. However, in recent years the increasing popularity of alternative investments and heightened levels of uncertainty in traditional markets has seen a rise in the number of private alternative asset management companies offering wholesale, sophisticated and retail investors access to different investment vehicles such as managed funds. The emergence of new mainstream alternative asset classes such as cryptocurrency has also seen a reduction in barriers of entry for individual investors.
Integrating alternative investments into a portfolio
When considering alternative investments, it is important to recognise the key differences and objectives upfront. It can be helpful for investors to view each different alternative asset in two distinct ways: –
Firstly, investors should look at the type of alternative asset (e.g., debt, currency, real estate), and whether it has a short or long-term underlying investment strategy. These factors determine how the alternative investment should perform relative to its traditional counterparts. This is important for investors who are looking to reduce volatility and overall portfolio risk.
The investment vehicle
Investors should then look at the type of investment vehicle the asset may be found in. For example, private credit funds, mutual funds, real estate funds, or global equity (global macro) funds. Each type of fund is structured according to the overall risk and return profile sought, its liquidity rating, management style and industry regulations.
Considering the asset in terms of ‘type’ and ‘investment vehicle’ can assist you to diversify your portfolio. Varying asset types can help you mitigate risk in your portfolio and gain exposure to additional markets, whilst, different investment vehicles can help you address distinct needs, e.g., liquidity, transparency, ease of access, etc.
Alternative investment funds
As mentioned earlier, alternative investments in Australia have the potential to boost returns, generate income and provide portfolio diversification. For these reasons, they are gaining more recognition and popularity as a successful and important aspect of an investor’s overall portfolio strategy. At Remara, we specialise in alternative investment funds, providing investors with a unique range of products designed to give investors uncorrelated returns, access to attractive long-term returns, and a more balanced overall investment portfolio.
Our private credit fund was specifically designed as an alternative investment vehicle for fixed-income investors. It provides investors with a low risk, high yield return profile and the added benefit of monthly repayments, or the option to reinvest.
The fund invests in quality personal loans, car loans, trade, business and debtor loans and has a proven track record of 12.14% annualised p.a since inception (after fees). There are no penalties to access funds, or withdrawal fees providing security, flexibility, and cashflow when needed.
*Return is based on past performance and is not guaranteed.
Our real estate investment fund provides investors access to a diversified pool of development opportunities across small scale projects within residential, industrial and commercial markets. It allows investors access to value-add opportunities without the burden of purchasing and funding decisions or construction headaches. Offering returns in excess of 15%, it is well suited to self-managed super fund investments.
Global macro fund
A long-term investment strategy that provides exposure to commodity markets, equity, fixed income and currencies on a global scale. Our global macro fund is ideal for those looking to take on more portfolio risk for higher long-term returns. It is designed to offer greater liquidity and allows investors access to monthly funds without penalties, exit, or withdrawal fees. It offers both the option for reinvestment, or for the interest earned to be paid into your bank account.
To find out more about the varying alternative investments offered by Remara, contact our team today.