The alternative investments are illiquid investment products with high risk/return profile. Alternatives include following alternative asset classes: Private Equity, Hedge Funds, Real Estate, and Infrastructure and other specific non-traditional assets.
Private Equity is an equity capital that is not quoted on a public exchange. Private equity encompasses investments in funds that make investments directly into private companies or buyouts of public companies that result in a delisting of public equity. The main strategies employed by the Private Equity funds are the following:
Buyouts. The purchase of a company's shares in which the acquiring party gains controlling interest of the targeted firm. Incorporating a buyout strategy is a common technique used to gain access to new markets and is one of the most common methods for inorganically growing a business.
Growth capital is the intermediate stage between venture late-stage transactions and buyout deals. Private equity funds pursuing this strategy look for companies with a strong growth potential seeking to gain market share in their respective market, whether it is through geographic expansion, industry consolidation or organically.
Mezzanine capital is a hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full.
Hedge funds – privately organized investment vehicle that uses its less regulated nature to generate investment opportunities by using advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets.
Following are some of the commonly used hedge fund strategies:
Global Macro is a hedge fund strategy that bases its holdings - such as long and short positions in various equity, fixed income, currency, and futures markets - primarily on overall economic and political views of various countries (macroeconomic principles).
Event Driven is a strategy adopted by hedge fund managers that attempts to take advantage of events such as mergers and restructurings that can result in the short-term mispricing of a company's stock. This strategy focuses on exploiting the tendency of the equities of companies in a time of change to drop in price.
Long/short is the strategy that combines a core group of long stock positions with short sales of stock or bearish positions in stock index options and futures. Their net market exposure has a positive bias towards long positions.
Managed futures strategies specialize in the physical commodity, financial futures markets and exchange rates, often employing sophisticated computer-driven trading programs. These funds tend to use very precise trading rules to capture price movements, and focus on short - term patterns. Although historically classified as a separate asset class from hedge funds, that distinction has blurred.
Fixed Income Arbitrage is an investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income arbitrage strategy, the investor assumes opposing positions in the market to take advantage of small price discrepancies while limiting interest rate risk.
Multi Strategy. Investment approach is diversified by employing various strategies simultaneously to realize short- and long-term gains. Other strategies may include systems trading such as trend following and various diversified technical strategies. This style of investing allows the manager to overweight or underweight different strategies to best capitalize on current investment opportunities.
Real estate intended for investment purposes usually generates income rather than being used as primary residence. Income comes either as rental income or profits through price appreciation.
Infrastructure is the basic physical systems of a business or nation. Transportation, communication, sewage, water, utilities and electric systems are all examples of infrastructure. These systems tend to be high-cost investments, however, they are vital to a country’s economic development and prosperity.
The investment geography includes North America, Europe, Asian-Pacific region, and emerging market countries.