ALTEXCHANGE BLOG

Learn About Alternative Investment Types-5

Investment Types

For this purpose, ‘Investment’ refers to ‘Alternative Investment’ and below are the types:

  1. Private Equity – Private equity is a broad category that refers to capital investment made intoprivate companies, or those not listed on a public exchange, such as the New York Stock Exchange. There are several subsets of private equity, including:
    • Venture capital, which focuses on startup and early-stage ventures
    • Growth capital, which helps more mature companies expand or restructure
    • Buyouts, when a company or one of its divisions is purchased outright
  2. Private Debt – refers to investments that are not financed by banks (i.e., a bank loan) or traded on an open market. The “private” part of the term is important—it refers to the investment instrument itself, rather than the borrower of the debt, as both public and private companies can borrow via private debt.Private debt is leveraged when companies need additional capital to grow their businesses. The companies that issue the capital are called private debt funds, and they typically make money in two ways: through interest payments and the repayment of the initial loan.
  3. Hedge Funds – are investment funds that trade relatively liquid assets and employ various investing strategies with the goal of earning a high return on their investment. Hedge fund managers can specialize in a variety of skills to execute their strategies, such as long-short equity, market neutral, volatility arbitrage, and quantitative strategies. Hedge funds are exclusive, available only to institutional investors, such as endowments, pension funds, and mutual funds, and high-net-worth individuals.
  4. Real Estate – There are many types of real assets. For example, land, timberland, and farmland are all real assets, as is intellectual property like artwork. But real estate is the most common type and the world’s biggest asset class.In addition to its size, real estate is an interesting category because it has characteristics similar to bonds—because property owners receive current cash flow from tenants paying rent—and equity, because the goal is to increase the long-term value of the asset, which is called capital appreciation.
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  5. Commodities – are also real assets and mostly natural resources, such as agricultural products, oil, natural gas, and precious and industrial metals. Commodities are considered a hedge against inflation, as they are not sensitive to public equity markets. Additionally, the value of commodities rises and falls with supply and demand—higher demand for commodities results in higher prices and, therefore, investor profit.
  6. Collectibles – include a wide range of items, from rare wines to vintage cars to baseball cards. Investing in collectibles means purchasing and maintaining physical items with the hope the value of the assets will appreciate over time.
  7. Structured Products – usually involve fixed income markets—those that pay investors dividend payments like government or corporate bonds—and derivatives, or securities whose value comes from an underlying asset or group of assets like stocks, bonds, or market indices. Examples of structured products include credit default swaps (CDS) and collateralized debt obligations (CDO).