The Quirky Side to
Alternatives
lower VOLATILITy
diversification
increase INCOME
In our series on Alternative Investments we’ve taken a deep dive into everything-what, why and how. In our last piece for this series, we thought we’d take a look into the quirkier side to alternatives.
What are Alternative Investments?
To briefly recap our previous posts, alternative investments refers to any investment that falls outside of the stock market. This includes tangible assets (e.g. real estate and fine art) and financial assets (e.g. venture capital and private equity).
Since alternative investments are less exposed to traditional market conditions, alternative assets are a well known and attractive way to diversify and enhance returns.
We explored what alternative investments are in a little more detail here and here.
Quirky Alternatives
Not all alternative investments are that ‘alternative’. In fact, many are well-known, such as real estate, venture capital and private equity. However there’s a quirkier (yes, more ‘alternative’) side to the industry which extends a little beyond these familiar categories.
Debt
Private debt includes mostly non-bank institutions making loans to private companies, backed by real assets or real estate. Debt can include a direct lend, distressed debt, mezzanine, real estate and infrastructure and venture debt. Typically, the rates that these private lenders might be 5-15% higher than bank loans, however access to capital is generally faster.
For investors, private debt can provide a stable income while secured by an asset. The best case scenario: the investor receives their interest payments and then repayment of the contractual loan amount. Both parties have potential to benefit. The worst case scenario: the lender fails to pay the interest and principal back, so you the asset or real estate has to be sold.
Farmland
Farmland is real estate, but also serves as a business. The increased interest in farmland over the past 10 years has increased the price of farmland.
Farmland is increasingly being seen as an investment: the investor benefits from the cash flow generated from the land and the land itself can be hedged against inflation (this means the investment will not lose value compared to inflation).
Timberland
Timberland is also real estate related, but its unique characteristics make it particularly appealing to investors. Timberland is a plot of land that is grows and harvests trees, which produces reasonable income for investors. However, it is also a renewable resource and an investment that keeps on giving. And the longer trees grow, the more valuable the wood becomes. This produces a predictable growth rate if bought at the correct price. Additionally, the land appreciates.
Artwork & Collectables
Artwork and collectables include paintings, sculpture, pottery, coins, wine, stamps, signatures, and sports or historical memorabilia. There have even been a few art or wine funds created to invest in multiple pieces without taking a large risk on just one. Artwork or collectables as an investment have a dual purpose. They can certainly be seen as an investment, but it also has the benefit of your personal enjoyment of viewing this piece. As the saying goes, beauty is in the eye of the beholder. Invest in something you enjoy.
Commercial Assets
Where there are large and expensive pieces of equipment that cannot be afforded by the user, the equipment can be leased from equipment lessors. These people own the equipment and then lease it out. If the lessee fails to pay the lease, the lessor can repossess the equipment.
Legal
Legal settlements are a type of financial arrangement agreed upon following a successful personal injury claim or similar tort lawsuit, which guarantees the plaintiff a series of payments over a defined term.
Typically the structured settlement will be made up of an initial lump sum, a further period of smaller payments to cover ongoing medical expenses and/or larger payments after a number of years to support the plaintiff through retirement.
An investment opportunity arises if the plaintiff decides they need access to a lump sum in lieu of the scheduled payments. The investor provides the sum and the insurance company fulfils the scheduled payments to the investor instead of the original plaintiff.
Even Quirkier Alternatives
Antique Cars
Storage Units
Mobile Homes
Tax Liens
Royalties
Life Settlements
