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Was sind Alternative Investments?

Alternative Investments (AI) sind innovative Anlagestrategien und -konzepte, die der besseren Diversifizierung und Optimierung der Rendite-Risikostruktur des Portfolios dienen. Der Begriff wird oft mit "Hedgefonds" und "Private Equity" verbunden, dabei erstreckt sich das Feld der AI jedoch ebenso auf die Bereiche "Private Debt", "Infrastruktur" oder "Rohstoffe" sowie viele weitere.

14. December 2018

What are Alternative Investments?

Alternative Investments (AI) are innovative investment strategies and concepts, which are designed for diversification and optimization of return/risk structures of portfolios. Usually the term is often linked to "Hedge Funds" and "Private Equity", but the scope of AI covers amongst others "Private Debt",  "Infrastructure" or "Commodities" as well. Since there is no universal definition, various interpretations can be found. The BAI recognizes AI as investments in non-traditional asset classes (beyond shares and bonds) or investments in such classes with the aid of complex, non-traditional strategies.

The simplified graph explains why a simple distinction of the different parts of AI is commonly difficult. For instance Hedge Funds are categorized regarding asset classes and strategies (e.g. Fixed Income Equity), but apart from the asset class their common thread is the manner, how and on which point in time they take their investments (e.g. Event Driven, Tactical). The various parts of the AI universe share the fact that - assumed adequate portfolio allocation - the asset classes and strategies can be conducive to a significant improvement of the return/risk relation. Beyond the diversification effect there are still more attributes of Alternative Investments:

• Above average return potential
• Possibly lower liquidity
• Possibly lower transparency
• Application of leverage and derivatives
• Return commonly not normally distributed
• Complex performance and risk computation

Furthermore actual returns of bonds and sovereigns are stressed by the period of low interest rates, in such way that the combination of both essential factors return and risk investments in Alternative Investments are dictate of the moment. Thus, the relevance of AI will be increasing over time and will take up more space in the investor's portfolio allocation.

Hedge Funds
Hedge funds are investment funds that invest with advanced strategies and not with traditional strategies. Hedge funds differ mainly from ordinary investment funds through its multi-faceted strategies and techniques. They use risk management systems, leverage and short positions to benefit from market inefficiency. You can see that hedge funds invest in traditional asset classes by the use of alternative strategies.>> To the FactSheet

Managed Futures/CTAs
Commodity Trading Advisors is a state-regulated term for asset managers in the U.S. These asset managers invest only in derivative products. The investments are made mainly in listed financial and commodity futures. A large part of the Fund's assets may be invested in the money market because in comparison to investments, derivative market products bind only small amounts of money. This does not mean that the risk is low in this asset class.>> FactSheet follows

Private Equity
Private equity are investments in equity capital or the acquisition of a company that is not publicly traded on a stock exchange. The main characteristic is the high debt ratio to finance the acquisition or participation. The required debt is taken by bank loans and/or by issuing bonds. The debt service of the loans will be covered by the future income of the target company or the sale of assets. >> To the FactSheet (in German)

Private Debt
Private debt refers to all types of non-publicly issued (ie private) debt instruments. Investment opportunities in the private debt area include e.g. Infrastructure financing, commercial real estate financing, aviation and also corporate loans. Private debt is also defined as so-called direct lending, ie the lending of loans to medium-sized companies by a financial institution with non-bank status (eg asset managers, insurance companies or credit funds)

>> To the FactSheet (in German)

Infrastructure Investments
Infrastructure Investments in infrastructure involve a variety of diverse areas, which are heterogeneous and have specific characteristics and properties. On the highest level they can organized in an economic and a social field, which can be further categorized. Transport infrastructure (e.g. toll roads or rail), publicly regulated energy and water supply, communication infrastructure (e.g. mobile communications or satellites) as well as the renewable energies fall within the scope of the economic area. Social infrastructure covers hospitals, educational and cultural institution among others. Furthermore we can distinguish between different project stages, where investments are located. Greenfield projects cannot build upon existing infrastructure and are planned, constructed and maintained entirely new. On the other hand Brownfield projects can build upon established infrastructure or Greenfield projects, which passed over to the operational phase or were shortly before the implementation.
>> To the FactSheet (in German)

Real Estate
Real estate investments invest in properties regardless to their purposes of use (e.g. residential real estate). The main aim is to generate high returns. Real estate investments can be made by direct investments or through specialized real estate funds. These funds can be structured as a real estate investment trust (REIT), which invests in properties or in shares of real estate companies. REITs are listed stock corporations, which generate their revenues mainly through managing or trading of real estates.

Commodity investments include a multitude of heterogeneous investments, which are traditionally precious metal, industrial metal, crude oil, natural gas or agricultural commodities. As a consequence of the heterogeneity of the commodity sector, there are certainly different ways to categorize raw material (commodities). You can categorize them for example by the type of use or whether they can be consumed directly or they are to be used in the manufacture. Another possibility is the distinction between hard and soft commodities. Hard commodities are not renewable raw materials which are characterized by their limited availability. Soft commodities are renewable perishable commodities.