Stocks and bonds are two of the most sought investments for investors. These investments provide higher returns while also being liquid. Therefore, they are more accessible and can increase the investor’s wealth. Another highly liquid investment is cash.
These three options constitute the traditional investments for investors. However, some investors seek other assets in the market.
With the above options, investors get easier access to the underlying product. However, most investors rely on these to build a portfolio. In some cases, these traditional options may relate to each other.
Therefore, the portfolio risks grow with the undiversified range of investments. Investors usually seek to minimize these risks to ensure more safety.
Apart from the three investment options, investors can also invest in other assets. These assets may include hedge funds, private equity, or cryptocurrencies. Usually, these are not as liquid as the three options mentioned above.
However, they allow investors to diversify their portfolios by including different products. These fall under alternative investments.
What is an Alternative Investment?
An alternative investment includes assets that do not fall under the three traditional investments. Usually, they explore other markets to build a diversified portfolio. In some cases, these investments can provide more returns as well. However, the liquidity risks associated with alternative investments are higher than traditional options. Despite that, they can have significant benefits as well.
When investors create a diversified portfolio, they invest in different assets. This way, if one investment fails, the others can still perform.
By investing all resources in three available options, investors limit diversification. However, alternative investments provide more options from which they can choose. As mentioned, these may include private equity, hedge funds, cryptos, or real estate.
Alternative investments may include tangible and financial assets. These investments consist of commodities, precious metals, or collectibles, which fall under the former category. Similarly, they may also contain hedge funds, distressed securities, and private equity.
Therefore, alternative investments provide significant diversification opportunities to investors. Most of these options have a low correlation with traditional investments.
While alternative investments are beneficial, they can also be a costly option. Most of these options don’t have a primary market.
Therefore, investors have to find them through secondary markets. On top of that, determining the value of these investments is challenging.
One of the reasons behind it may include the absence of frequent transactions. These features also make alternative investments more costly. Some may even require minimum investment amounts.
Overall, alternative investments are assets that do not include stocks, bonds, or cash. These assets do not correlate with traditional investments.
Therefore, they provide a crucial method for investors to diversify their portfolios. However, they also come with some drawbacks. Most alternative investments have lower liquidity than traditional investments. Similarly, they can be more costly as well.
What is an Alternative Investment Fund?
An alternative investment fund is an approach to investing in non-traditional assets. Through these, investors can invest their capital in those investments. Essentially, alternative investment funds pool investors’ money together. Once they obtain enough capital, they invest it in various alternative investments.
Some of these funds may also have a dedicated investment asset. For example, private equity funds invest in private shares only.
Alternative investment funds have a manager that manages the capital. Through these funds, managers invest in alternative investments through an investment strategy.
Usually, each fund has its objectives based on its investors. Some alternative investment funds may focus on diversification, while others prefer higher returns. Either way, these funds collect investors’ capital and invest them to achieve an objective.
Alternative investment funds may have several investors. These investors collect their resources and invest them into the funds.
As mentioned, a manager then places these resources into several assets that do not include bonds or stock. These managers require high expertise and dedication to manage investors’ portfolios.
Usually, the investors do not have a say in how the manager uses their capital. However, they can choose the fund that meets their requirements.
Alternative investment funds may come in various forms. They may include mutual funds, money market funds, hedge funds, or exchange-traded funds.
Usually, they are similar to other investment funds. However, they invest in alternative investments. These funds provide a broader selection of investment opportunities.
Similarly, they may lower the management costs for investors than if they do so on their own.
Overall, alternative investment funds gather a supply of capital from various investors. Once they do so, they invest that capital in alternative investments.
Usually, these funds have a fund manager that makes decisions. These managers are capable individuals with experience in the field. With alternative investment funds, investors can achieve several benefits. These funds do not require investors to make active decisions.
Top 6 Roles of Alternative Investment Fund Managers:
An alternative investment fund manager is an individual or firm that managers funds. These managers make investment decisions on the investor’s behalf.
Usually, they use single or various strategies to place resources into alternative investments. By doing so, they can achieve the goals set by the alternative investment fund. Some of the roles and responsibilities of an investment fund manager include the following.
1) Perform market research and trend analysis
An alternative investment fund manager always seeks to identify new investments. For that, they must perform market research and trend analysis.
Consequently, they can determine whether an investment will meet the fund’s objectives. Market research is also crucial in avoiding investments that can result in a loss. Ultimately, it provides the base for the work that these managers do.
2) Make investment decisions
Alternative investment fund managers make decisions about each portfolio they manage. As mentioned, these decisions usually include which assets to buy or sell. Every portfolio may follow a different goal.
Therefore, alternative investment fund managers must ensure that the decisions help achieve those goals. Overall, making investment decisions is one of the most crucial parts of being an alternative investment fund manager.
3) Analyze investments
Alternative investment fund managers must manage different alternative investments. For that, they must analyze every option to assess whether they can be profitable.
This analysis may include calculating financial metrics or ratio analysis. In some cases, managers also use software to perform this analysis. The primary goal of this process is to ensure the selection of the most beneficial investments.
4) Offer investment advisory services
Alternative investment fund managers also fulfill an advisory role. Under this role, they must provide recommendations about new investments.
Similarly, they must communicate new products to every investor. For that, they must also analyze various options. The advisory role is one of the most prominent features of the alternative investment fund manager position.
5) Reconcile investment values
Alternative investment funds require active management. Therefore, a manager’s role does not end when they invest in an asset. In addition to that, they must also reconcile investment values.
This process is crucial in assuring the investments are performing as expected. Usually, managers perform this reconciliation daily, weekly or monthly.
6) Manage a team
Alternative investment fund managers do not work alone. They also require a team of analysts, traders, and accountants.
However, they must also manage the team to ensure they work toward the same goals. On top of managing them, managers must also design and implement training activities. These activities are crucial in helping the team develop and improve their skills.
Alternative investments include assets that do not fall under traditional investments. Investors can pool their funds through alternative investment funds to invest in those assets.
Usually, each fund has a manager that handles its operations. The roles and responsibilities of an alternative investment fund manager include various tasks. Some of those are listed above.