What are Alternative Investments?

The word "alternative investment" may conjure up images of investments available solely to institutional investors, or exotic and complicated investment products not available to the average investor or it may bring up nothing for you because you have no point of reference. Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of their complex nature, lack of regulation, and degree of risk. They are appealing to these types of investors as a hedge against the market and inflation, and for most individuals, the superior returns.  Although alternative assets may have high initial minimums and upfront investment fees, transaction costs can be lower than those of conventional assets due to the low levels of turnover. Because of regulatory reforms, access to this class of assets, “the alternative investment” is now available to a much broader group of investors, and the benefits are significant.

Diversify your Portfolio with Alternative Investments

Alternative investments are a great way to diversify portfolios since they are not necessarily correlated with typical investments like stocks and bonds. In fact, they often move counter to the stock market.  This means they will retain value when your other asset classes are losing value. Alternative investments in gold, oil, and real estate have the added benefit of protecting you against inflation. These assets hold their value during times of inflation unlike paper money. 

Because of these factors, larger funds allocate around 10% of their portfolio to alternative investments. 

For these reasons, the alternative investment strategy is a great way to diversify any portfolio. Let's take a look at the different types of alternative investments in the next section below.

Types of Alternative Investments

What types of alternative investments are there? The most common alternative investments include private equity, hedge funds, venture capital, oil & gas, and real estate. Some investors will broaden the definition to include other assets such as diamonds, precious metals, art, antiques, and collectibles. Most recently, cryptocurrency has also joined the list of alternative investments.

We’ll focus on three commonly chosen alternative investments that you as an individual investor may consider for your own portfolio.

• Private Equity – For the sake of simplicity, we are talking about the most common meaning of the term which involves investments in mature companies (as distinguished from sub-categories of PE such as venture capital or growth equity funds). This is one of the largest alternative investment industries available with assets under management in the trillions of dollars, and fund managers typically handle assets ranging from hundreds of millions to billions of dollars. Private equity funds are focused on the long-term potential of the privately owned portfolio of companies they hold a majority interest in or acquire. These funds are not typically available to small investors, and often require $250,000 or more to invest. They are suitable for accredited investors, which enables less SEC regulation than more accessible investment funds such as mutual funds. They invest in a wide range of industries and assets, including real estate, infrastructure, oil & gas, and debt. The primary investment activity of these firms is to improve the companies they acquire in order to make them more valuable, then sell them at a profit. It requires operational and industry expertise, strategy, and execution of very specific initiatives. It is a long-term vision as compared with other types of funds, with the highest profits being realized in months or years.
• Hedge Funds - These funds will usually invest in a wide range of securities but are often restricted to assets that are publicly listed. As with PE funds, hedge funds are rarely accessible to small investors, and usually require accredited investor status. There are a variety of investment strategies used by hedge funds, some of which may be considered aggressive and risky, such as commodity futures, derivatives, short selling, etc., all with the goal of making quick profits from one investment to the next in short periods of time.
• Venture Capital -These firms specialize in investmenting in privately held businesses. Most of the time these companies are in the early-stage or are start-ups with big upside potential. They are positioned to rapidly grow and ultimately be sold at a high price through a traditional sale to a larger company, or go public using an Initial Public Offering (IPO).

While hedge funds and venture capital investments have significant advantages for investors who meet their criteria, private equity funds have an arguably less risky business model. With that said every investor should evaluate the pros and cons of each investment type, and these common fund models are no exception.

Even within these categories of investment funds, there are variations from fund to fund. For example, there are innovative funds that offer even greater advantages than the standard models. We will highlight one such fund in the next section called Velocity3X.

Velocity3X with GenX Capital Group

GenX Capital is an investment firm offering alternative investment opportunities with high returns and low risk, by giving even the small investor access to a proven, risk protected private equity strategy. Currently this is our Velocity3X fund.

With Velocity3X, we specialize in acquiring small but profitable and high cash-flowing companies, then apply our resources, expertise, management and corporate strategy to drive revenue and profit higher to achieve maximum market value upon exit. Traditional PE firms cannot implement our business model, which is why we can outperform their results.

If you’re an investor looking for high returns with short hold periods to quickly increase your net worth, then we may be the right firm for you. Our Velocity3X offering is built to triple your investment in just 4 years. Check out our Executive summary to see how we do it!