Alternative Investment Manager Guide to Private Alternatives and More

As an alternative investment manager, you're likely no stranger to the world of private alternatives. These investments can provide a hedge against market volatility and offer attractive returns, but they can also be complex and difficult to navigate.

Private equity investments can be particularly appealing, with the potential for long-term capital appreciation. According to the article, private equity investments have historically outperformed public equity investments over the long term.

To get started with private alternatives, it's essential to have a solid understanding of the different types of investments available. This includes private equity, hedge funds, and real estate investments, among others.

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Alternative investments, also known as alts, are financial assets that don't fit into the conventional categories of stocks, bonds, and cash. These investments can include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts.

Real estate is often classified as an alternative investment, which can provide a unique opportunity for diversification.

Private alternative investments offer access to opportunities that might not be readily available through the public markets. They can also be less correlated to traditional asset classes, making them a potentially attractive addition to a portfolio.

Private alts are typically not as liquid as public investments, so investors need to be aware of this trade-off.

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Alternative investments come in many forms, each with its own unique characteristics and requirements. Private equity investments, for example, typically involve buying shares in a private company or a group of companies.

Investors can participate in private equity investments through private equity firms, venture capital funds, or crowdfunding platforms. Real estate investments, on the other hand, can be made through various means such as buying rental properties, investing in Real Estate Investment Trusts (REITs), or investing in real estate crowdfunding platforms.

Some alternative investments, like commodities, involve buying physical assets such as gold, silver, oil, or agricultural products. Investors can also participate in commodity investments through commodity trading platforms, exchange-traded funds (ETFs), or mutual funds.

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Here are some specific types of alternative investments:

Real estate is a popular alternative investment option that offers a tangible asset and potential for ongoing cash flow. Investors can invest in physical properties or property-based securities.

You can invest in real estate through various means, including real estate crowdfunding platforms, real estate investment trusts (REITs), and real estate mutual funds. These options allow you to diversify your portfolio and potentially increase your returns.

Investing in real estate can provide a stable source of income through rental properties or property-based securities. Additionally, you can benefit from capital appreciation of tangible assets.

Here are some ways to invest in real estate:

Farmland, which combines elements of real estate and commodities, is another alternative investment option that can provide ongoing cash flow.

Art and collectibles can be a unique way to diversify your investment portfolio. Some people even consider them a hobby, which can make investing more enjoyable.

Art can develop worth over time as the artist becomes more historic. This can lead to significant returns on investment, especially if the artist's work is in high demand.

Investing in sports memorabilia can be a great way to own a piece of history. For example, a jersey signed by a legendary athlete can become more valuable as the athlete's fame grows.

High-end watches can also be a valuable collectible investment. Some luxury watch brands, like Patek Philippe, can increase in value over time due to their limited production and historical worth.

Investing in entertainment memorabilia, such as movie props or costumes, can be a fun and unique way to own a piece of pop culture history. These items often appreciate in value as the associated movie or TV show becomes more iconic.

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Cryptocurrencies are a type of alternative investment that's gained significant attention in recent years. They're a form of digital currency that's outside the traditional scope of stocks and bonds.

Investing in cryptocurrencies can be done through cryptocurrency exchanges, brokers, or online platforms. To get started, you'll need to deposit domestic currency into a digital wallet that will house the private keys and currencies of that investor.

Cryptocurrencies offer the potential for capital appreciation or passive income through staking rewards. However, they may not provide a strong hedge against other risk-on investments.

Investors must often have a high level of technical knowledge and risk tolerance to navigate the cryptocurrency market.

Venture Capital Equity is a type of alternative investment that involves putting capital into private companies or start-ups, rather than trading shares of public companies in an open market.

Investors in Venture Capital Equity often seek a higher potential return on investment, as private companies can offer more growth opportunities than established public companies.

Venture Capital Equity is a refined branch of stock investments, making it a more targeted and less volatile option for those willing to take on more risk.

Private companies can offer more control over the investment, as investors may have a seat on the company's board or be involved in decision-making processes.

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Peer-to-peer lending is a type of alternative investment that involves making loans to individuals or businesses through online platforms.

These platforms connect borrowers with investors, taking a form similar to investing in bonds, but on more private markets.

Peer-to-peer lending often entails transacting with riskier clients, which can be a drawback.

However, there is a potential for higher returns, though not always.

Investors should be aware that this type of investment can be riskier than traditional bonds.

At Homrich Berg, we provide access to private alternative investments through direct or internally managed funds. These funds offer a way to diversify from traditional public funds and potentially outperform.

Our firm has a dedicated investment research team supported by a senior-level investment committee that performs rigorous due diligence on private investment opportunities.

We don't charge a management fee or performance fees to investors, which can save them money in the long run. Since 2000, our firm has created and invested in over 30 private fund of funds.

Private alternative investments can provide a range of benefits, including diversifying away from public markets and potentially increasing investment returns over the long term.

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Regulation and compliance are crucial aspects of alternative investment management. Alternative investments are often subject to a less clear legal structure than conventional investments. They do fall under the purview of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and their practices are subject to examination by the U.S. Securities and Exchange Commission (SEC). However, they usually don't have to register with the SEC, which means they are not overseen or regulated by the SEC as are mutual funds and ETFs.

Investors must conduct extensive due diligence when considering alternative investments. In some cases, only accredited investors may invest in alternative offerings. Accredited investors are those with a net worth exceeding $1 million—not counting their primary residence—or with an annual income of at least $200,000 (or $300,000 combined with a spousal income) in each of the two previous years. Financial professionals who hold FINRA Series 7, 65, or 82 licenses may also qualify as accredited investors.

Regulatory standards for alternative investments are less clear than they are for more traditional securities. Alternative investment vehicles are regulated by the SEC, but their securities do not have to be registered. This means that most of these investment vehicles are only available to institutions or wealthy accredited investors.

Here are the key regulatory standards for alternative investments:

By understanding these regulatory standards, alternative investment managers can ensure compliance and provide transparency to investors.

Alternative investments can be a great way to diversify your portfolio and potentially reduce overall risk. They often have low correlations to traditional investments, making them a good choice for investors looking to spread their risk.

Private alternative investments can be locked up for 10+ years, which can be a significant consideration for investors. They also generally have higher fees than public investments, which can eat into returns.

Manager selection is crucial when it comes to private alternatives. Top-quartile managers can have significantly better returns than bottom-quartile managers, so it's essential to choose a reputable and experienced manager.

Here are some key things to consider when evaluating a private alternative investment manager:

By doing your research and choosing a reputable manager, you can potentially achieve higher returns and reduce your overall risk.

Alternative investments can provide a unique way to diversify your portfolio and reduce overall risk. This is because they often have low correlations to traditional investments like stocks and bonds.

Investors can potentially earn higher returns from alternative investments due to their riskier nature. This is a trade-off many are willing to take on for the potential benefits.

Alternative investments come in various forms, giving you the flexibility to choose the one that suits your preferences and risk appetite. You can even find investments that offer passive income opportunities, such as certain cryptocurrencies.

Some alternative investments may provide access to markets that aren't available through traditional investments. This can be particularly appealing to those with specialized interests, like a baseball enthusiast buying an autographed baseball.

Investing in private alternatives can offer a unique opportunity to capture an "illiquidity premium" – a potential reward for taking on the risk of illiquid investments.

Alternative investments can be a great way to diversify your portfolio and potentially increase returns, but they also come with some unique considerations. One of the main advantages is that they can offer low correlations to traditional investments, making them a great way to reduce overall portfolio risk.

Alternative investments often have the potential for higher returns compared to traditional investments, which can be a major draw for investors looking to grow their wealth. This is because they are considered riskier investments, which can result in higher returns for those who are willing to take on the extra risk.

However, it's essential to note that alternative investments can be complex and may have higher fees and transaction costs compared to traditional investments. This can eat into your returns and make it more challenging to achieve your investment goals.

One of the benefits of alternative investments is that they can provide access to markets that are not available through traditional investments. This can be especially appealing to investors who are passionate about a particular area, such as collectibles or art.

Here are some of the key advantages and disadvantages of alternative investments:

On the other hand, alternative investments can be illiquid, which means they may be difficult to sell quickly if you need to access your money. This can result in significant transaction costs or a loss of value.

It's also worth noting that alternative investments can be subject to less regulatory oversight, which can increase the risk of fraud or misconduct. This is why it's essential to do your due diligence and work with reputable investment managers to minimize these risks.

Overall, alternative investments can be a great way to add some excitement and potential returns to your portfolio, but it's essential to carefully consider the advantages and disadvantages before making a decision.

To invest in alternative investments, you'll need to consider the asset you're working with, as each type requires a different approach. Some may require substantial capital and research, while others can be accessed with just a few clicks.

Private equity investments typically involve buying shares in a private company or a group of companies, and can be accessed through private equity firms, venture capital funds, or crowdfunding platforms.

Investing in real estate can be done through various means, such as buying rental properties, investing in Real Estate Investment Trusts (REITs), or investing in real estate crowdfunding platforms.

Hedge funds are typically available only to accredited investors, who must have a high net worth and a substantial amount of investment capital to qualify. Investors can invest in hedge funds through hedge fund managers or brokers.

Commodity investments involve buying physical assets such as gold, silver, oil, or agricultural products, and can be accessed through commodity trading platforms, exchange-traded funds (ETFs), or mutual funds.

Art and collectibles can be invested in through art dealers, auction houses, or online marketplaces, but be sure to consider the reputation of the dealer when exploring these options.

Cryptocurrencies can be invested in through cryptocurrency exchanges, brokers, or online platforms, and require depositing domestic currency into a digital wallet.

Here are some key differences between the types of alternative investments:

By understanding the different types of alternative investments and their access requirements, you can start building a diversified portfolio that meets your financial goals.

With over 30 years of experience, Homrich Berg has developed a deep understanding of the private alternative space. They've grown to be one of the leading independent fiduciary RIAs focused on these investments, with $2 billion+ in assets under management invested for clients in private alternatives.

Homrich Berg's Chief Investment Officer, Stephanie Lang, CFA, is a leader in the Atlanta Institutional Investor group, a collection of major institutional investors focused on the private alternative space. She manages a dedicated team of analysts who source, evaluate, and monitor private investments.

Their investment team has a wealth of knowledge, with 30+ years investing in alternatives, 100+ alternative investment funds created for clients, and active relationships with 100+ alternatives managers. They also have a team of investment professionals with CFA charters or candidates in the CFA program.

As a fiduciary independent firm, Homrich Berg's recommendations are not driven by financial incentives, allowing them to focus solely on investing with managers they believe have the greatest potential to generate the best risk-adjusted returns for their clients.

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Their expertise extends to creating internal funds of funds, which are diversified portfolios of alternative strategies, as well as managing a multi-strategy hedge fund of funds for clients. They've created 30+ prior fund of funds investment vehicles since 2000 with 100+ manager relationships inside those funds.

Homrich Berg's capabilities also include helping clients deliver on investment, management, and exit/realization in private equity, hedge funds, and real estate funds. They leverage innovative approaches to add value while mitigating costs, and focus on adding efficiency and value at each step in the real estate fund lifecycle.

They also advise and assist in executing private credit activities, such as evaluating credit instruments and portfolios, and dealing with distressed debt. Their expertise spans the entire investment lifecycle, from formation and capital accumulation to realization and exit.

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The alternative investment industry is facing a multitude of uncertainties heading into 2024, including an evolving regulatory landscape and geopolitical turmoil.

Industry leaders representing different investment strategies are grappling with how to navigate these challenges, as evident in the Perspectives series of conversations with leading CEOs and founders of alternative investment firms.

Asset managers are finding it increasingly complex to operate and scale their businesses in this environment, with many struggling to attract and retain top talent.

The Long-Short podcast, in partnership with KPMG, is providing valuable insights and resources for industry professionals, including CEOs, founders, and investors.

The podcast is a great platform for learning from the experiences and perspectives of industry leaders, who are sharing their views on the outlook for the alternative investment industry and how to navigate its challenges.