Low interest rates, and the high valuation of stock markets for some institutions, have led to increasing talk of alternative investments. But the question is, what are they?
When volatility futures and dividend futures are lumped together with hedge funds, absolute return funds, total return funds and a long etc., the only thing we can say is that they are non-traditional investments.
We cannot even say that they are all liquid assets. Therefore, when it comes to defining them, we can only do so by extension and numbering. Here is a non-exhaustive table of the different products and their characteristics that we can extract.
Source: Harvard Business School
In addition, other factors such as fees, benchmark, minimum investment amount, transparency in the valuation of assets, especially illiquid assets, and the influence of incorporating these assets into a pre-existing portfolio of more traditional assets must also be considered.
Therefore, the most important challenge is an exchange of ideas with the potential investor to get to know the product, even if only briefly, and to make him/her see the advantages and disadvantages of this product from a realistic point of view, in order to make the investor see the premium of profitability that he/she can demand in relation to more traditional products.
Why alternative investments?
The main disadvantage of these products is the wide diversity of products covered by such a designation and the complexity of product analysis from both an absolute and relative point of view.
A large and diversified team with extensive experience is needed to manage the assets. The lack of dissemination in the economic media of the returns achieved in comparison with a benchmark index is a handicap.
It is not suitable for all investors, nor does everything covered by the alternative concept have the same characteristics. There is a lack of development work, which fortunately is already beginning to be done, so that this type of product, already consolidated in the Anglo-Saxon markets, reaches the final investor.
The democratisation of this type of product is a task for everyone, starting with the CNMV, which I believe should lower the amounts for investment and monitor their correct marketing.
The black boxes of Madoff and co. are a thing of the past. Investors are increasingly demanding co-investment, sincerity and realism, discarding the black boxes.
Do investors think alternative investments have a difficult analysis?