Tag: alternative investment management

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The value of private investing

Private investing explained

When a person first hears the term “private investing,” he or she might conjure up images of people who know each other giving each other money. However, over the years, the private investment market has developed its own set of rules and procedures that distinguishes it from public investing while allowing the two — private and public — to co-exist, in a manner of speaking.

Let’s take a brief look at what private investing is and the value it brings to certain types of investors.

Private vs. public

From a broad perspective, private investing is essentially any investing that doesn’t take place in the public markets, such as is typically done on a stock market, for example. However, even the private investment market doesn’t occur in a regulatory vacuum, which means, like public investments, it comes with some regulatory requirements, but not as many. Let me explain.

As an example, generally speaking, investments one can purchase on the stock market usually require a prospectus, and the disclosure requirements of public investments are generally more stringent than in the private markets.

Risks and returns

On the other hand, that doesn’t mean that the private markets don’t come with any disclosure requirements. For example, within the mortgage industry, mortgage investment corporations (MICs) usually come with a disclosure document often called an offering memorandum, and specifically qualified “accredited investors” can, generally speaking, only participate.

Some might say that these types of disclosure differences mean that the private markets are riskier. In a sense, they are. But there are two points to consider here. First, as the saying goes, without risk, there is usually no reward. As a result, private markets do allow for more risk and, as an extension, higher returns.

However, the second point is important too, which is this: the less regulation there is in any market, the freer investors are to take responsibility for the performance of their portfolios. This also means that investors can seek to form relationships with specialists in the field of private investments who know how to manage the risk in a way that benefits demanding clients.

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A viable alternative to traditional investing

Alternative investments vs. traditional investments

The term alternative investments doesn’t have the same meaning it once did. In fact, perhaps not too long ago, if someone came to you with the proposition of investing in something alternative, and you were playing a word association game at the time, terms that might also pop into your head include risky, dubious or even strange.

The fact is that today’s world of investments isn’t what it was thirty years ago, twenty years ago, or even as recently as a decade ago. Indeed, there has been what one can consider a significant shift from so-called traditional investments to the growing category of alternative investing. Let me explain.

A shift from stocks and bonds

Back in the day, so-called traditional investments, including bonds and stocks, could deliver some relatively high yields with relatively low risks. However, in today’s investment landscape, finding these high-yield, low-risk opportunities among stocks and bonds has become an exceedingly difficult proposition. Bond yields are not what they used to be, and neither are “high income” stocks, which now often have lower values than yesteryear, and correspondingly lower-paying dividends.

As a result, investors seeking the golden grail of high yields with lower risk have had to look elsewhere, and that’s where alternative investment firms have filled the gap — not with fly-by-night investment schemes and tricks, but with proven investment strategies that meet the needs of increasingly demanding investors.

Finding the right alternatives

The trick, however, is that these alternative investments are more challenging to manage, so they require a developed expertise in the field, whether the underlying investments involve real estate, mortgages, private-debt funds — you name it.

Consequently, investors need to be more discriminating than ever to find these rewarding investment opportunities. But, if the right opportunities are found, and are managed by qualified experts, than the returns are as formidable as any traditional investment has ever been, and more.

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