With traditional assets like stocks and bonds facing greater volatility, investors are looking to ultra modern investments in alternative assets for higher returns. Alternative investments like private equity, venture capital, hedge funds, managed futures, real estate, commodities, and digital assets are gaining popularity among investors seeking diversification and higher yields. However, these ultra modern investments come with higher risks and are suitable only for investors with higher risk appetite. Proper due diligence and portfolio allocation is key before deploying capital into these complex assets. With the right approach, alternative investments can enhance portfolio returns and reduce overall risk through diversification.
Private Equity Brings Higher Returns But Lacks Liquidity
Private equity refers to investments in private companies not listed on public exchanges. It includes late stage venture capital, growth capital, leveraged buyouts, distressed assets etc. Private equity investments are illiquid and investors commit capital for 5-10 years. However, they provide higher returns than traditional assets by taking higher risks. Private companies have huge growth potential before going public. Investors can gain exposure to this growth by investing in private equity funds run by top firms like KKR, Blackstone, Carlyle etc. But proper due diligence is must before choosing funds.
Venture Capital Bets On Emerging Technology Trends
Venture capital refers to investments in startups and emerging technology companies. Investors provide capital to startups with innovative technologies and business models in exchange for equity stake. These early stage investments are extremely risky with 90% failure rate. However, the 10% successful investments can give returns of 10-20x. For example, early investors in companies like Facebook, Google, Amazon etc gained massive returns. VC investments allow exposure to disruptive technologies like AI, crypto, biotech etc which reshape industries over time.
Hedge Funds Use Complex Strategies To Deliver Alpha
Hedge funds are privately run investment funds that use complex quantitative and derivatives strategies to generate alpha. They employ leverage, short selling and arbitrage techniques to profit in both rising and falling markets. Hedge fund managers have flexibility to take contrarian bets across assets like stocks, bonds, commodities, currencies etc globally. However, hedge fund returns are not correlated to traditional assets. Moreover, hedge fund strategies are opaque and susceptible to blow ups. Proper manager selection using track record, risk profile and reputation is critical before investing.
Managed Futures Profit From Global Macro Trends
Managed futures funds offer diversification by investing in global futures, options and foreign exchange markets. Commodity trading advisors use algorithmic models to identify macroeconomic trends in areas like interest rates, currencies, energy, metals etc and profit from them. Since they can go long and short, managed futures perform well in crisis situations when stocks and bonds decline. However, their short term performance tends to be volatile. Managed futures strategies should be blended with traditional portfolio to improve risk adjusted returns.
Hard Assets Like Real Estate Hedge Against Inflation
Real estate investment trusts (REITs) provide exposure to rental income generating commercial or residential real estate assets. As hard assets, real estate values rise during inflation making them effective hedges. Moreover, rental income from properties provides steady cash flows. REITs offer liquidity by listing on stock exchanges while still allowing exposure to underlying real estate. Direct real estate investments should be made with a long term horizon to ride out housing market cycles.
Ultra modern investments like private equity, venture capital, hedge funds, managed futures and real estate allow investors to diversify into alternative assets offering higher returns. However, these complex assets carry higher risks and should be blended with care into an overall portfolio based on risk appetite. Their unique characteristics help hedge against risks and diversify traditional portfolios of stocks and bonds.