With the fluctuations of public markets and the low interest rate environment,more and more investors are increasing their allocations to alternative assets for higher returns and greater stability. The demand for alternative assets is growing steadily. Alternative investments mainly consist of hedge funds, private equity and real assets. Investors choose alternative investments for portfolio diversification to lower overall investment risk. Alternative investments have excellent performance in risk reduction. They are usually inversely correlated with stocks and bonds. To obtain excellent returns across different economic cycles, many people choose alternative investments to complement their portfolios. Nowadays, the digitization of the alternative investment industry is an inevitable trend. Technology platforms that provide end-to-end digital experiences will be the key to success. This article will analyze the growth opportunities, digitization, and technology platforms of alternative investments.
The steady growth of alternative investment demand
According to data, global alternative investment assets under management are expected to rise from $7 trillion to $18 trillion by 2020. The main categories of alternative investments are hedge funds, private equity and real assets. Hedge funds invest in a wide range of instruments in public and private markets, often involving short positions, leverage and derivatives. Private equity refers to a set of closed-end investment vehicles that invest in private equity and debt. The main types are leveraged buyouts, venture capital, growth equity, mezzanine financing and distressed/special situations. Real assets focus on acquiring ownership stakes in non-financial assets through various closed-end and open-ended funds, with key categories including real estate, infrastructure, farmland and commodities.
The excellent performance of alternative investments in risk reduction
Alternative investments have low correlations with traditional investments like stocks and bonds. They tend to move against the general stock and bond markets. Thus many investors allocate to alternatives to complement their portfolios for superior performance across different economic cycles. For example, when stock markets decline, some hedge fund strategies can generate positive returns by shorting stocks or using derivatives. Private equity funds aim for high returns regardless of market conditions. Real asset values are more stable and have inflation hedging abilities. By combining alternative investments with traditional assets, investors can build truly diversified portfolios with attractive risk-return profiles.
The inevitability of digitization in the alternative investment industry
The alternative investment industry is rapidly adopting digital technologies. This digitization trend is driven by the expectations of investors, especially the new generation of digital native millennials who will inherit significant wealth. Advanced fintech platforms are emerging to digitalize the entire alternative investment process. They streamline everything from customer onboarding, KYC, AML, investment selection, compliance procedures to reporting and due diligence. This enables investment advisors to spend more time enhancing client relationships rather than on tedious manual workflows. Advisors who embrace digital platforms will be able to provide their HNW clients with faster access to more alternative investment opportunities. This is the key to attracting next gen investors, enhancing portfolio diversification and gaining a competitive edge.
How technology platforms add value for alternative investments
The best alternative investment technology platforms aim to provide advisors and investors with seamless end-to-end experiences. They facilitate a progressive process that guides users through every requirement, from KYC, suitability, AML, due diligence to marketing, portfolio monitoring and reporting. They reduce regulatory burdens by providing all necessary paperwork. Their robust risk frameworks pave the way for easy and informed investment decisions. These platforms enable 24/7 access to investment opportunities and documents. They provide real-time transparency into portfolio performance. Built-in security ensures data privacy and asset safety. Ultimately, integrating these fintech solutions will make alternative investment businesses more cost-efficient, agile and competitive for long term success.
To summarize, the demand for alternative investments is growing rapidly due to their diversification benefits and excellent risk-adjusted returns. Digitization is inevitable as tech-savvy millennials inherit wealth. Alternative investment advisors and fintech platforms need to work together to provide seamless digital experiences. This will attract next gen investors by simplifying access to more alternative investment opportunities, while achieving cost efficiencies and maintaining regulatory compliance.