Category Investments

The growing accessibility of alternative investments

09 July 2024 IFSA Private Equity

One of the most significant shifts in the investment landscape is the democratisation of access to alternative investments.

There is a misapprehension that alternative investments – including private equity – are somehow out of the reach of most people, and that the majority of those looking to plan effectively for their financial future should remain within the well-trodden realms of equities, cash and bonds.

Frikkie van Loggerenberg, CEO of IFSA Private Equity says that this is not the case. “Alternative assets are no longer the reserve of professional investors with years of experience. As educational resources around alternative investments become more common, investors of all types are becoming more confident in evaluating their potential risks and benefits.”

Van Loggerenberg says that in the past, alternative investments have been more tightly regulated as an investment class, and access to them more securely controlled. But today, alternative investment specialists are available to make the process of incorporating alternative investments into a well-rounded portfolio easier than ever before.

“The availability of educational resources is a critical factor in the greater accessibility of alternative investments. Financial literacy is at an all-time high, thanks to the efforts of financial advisors, educators, and influencers who are dedicated to demystifying complex investment concepts. Podcasts, YouTube channels, and social media platforms are also contributing to a more informed investor base. As a result, individuals are better equipped to understand the risks and rewards associated with alternative investments,” Loggerenberg adds.

One of the major advantages of adding alternative investments to a portfolio is diversification. By investing in assets that are not highly correlated with traditional stock and bond markets, investors can reduce their overall portfolio risk. Alternatives like real estate, private equity, and commodities often perform differently than publicly traded securities during various economic cycles and market conditions.

For example, during periods of high inflation, commodities like precious metals and energy products can act as an effective hedge against rising prices. Real estate investments can generate consistent income streams through rental properties, even when stock markets are volatile. Private equity funds may provide opportunities to invest in innovative companies with high growth potential before they go public.

However, it's important to understand that alternative investments also come with their own set of risks. Many alternatives are less liquid than traditional investments, meaning they cannot be easily bought or sold on short notice. Some alternatives, such as private equity or hedge funds, may have high investment minimums and complex fee structures. Thorough due diligence and working with experienced professionals is essential when evaluating alternative investment opportunities.

Despite these potential challenges, the benefits of portfolio diversification and the ability to access unique investment opportunities make alternatives an increasingly attractive option for investors of all levels. By educating themselves and seeking guidance from qualified advisors, more investors can responsibly incorporate alternative assets into their long-term financial plans.

“As the investing landscape continues to evolve, maintaining an open mind toward new asset classes and strategies can help investors stay ahead of the curve and achieve their financial goals more effectively,” concludes Loggerenberg.

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