Tuesday, 21 July 2015

Ten Alternative Asset Classes for Investment Selection (Part One)

I found ten alternative asset classes for investment selection or options when exploring capital deployment of your cash consideration. These are all collective investment scheme intended to provide higher than normal yield to the investor with a presumption that an individual investment account may not do as well.

A sovereign wealth fund is not called a wealth fund for no reason. Andrew Ang explains this well. (see video)
Courtesy of Columbia Business School

Other forms of alternative investment options are not government based investments similar a to sovereign wealth, but are mostly private base investments. A Mutual Fund is a privately held or sponsored collective investment scheme that is organized as a open end fund or closed end fund. In recent years we have seen a cousin of a mutual fund that has seen the birth of the Exchange Traded Fund (ETF).

The cost associated with the different alternative investment schemes does vary and may depend on funds under management or some other variable that determine the fees charged. I never like a managed account. Why? Because without proper control your account can be churned to drive up fees for the manager without consideration for the best return or yield for the investor.

There is also what is called a Family Office that is a little different from most alternative investment and generally more selective and holistic in its investment approach. There are single and multiple family offices. Hedge Funds sometimes start these operations when they no longer need public investors to fund their investment ideas. Hedge fund fees are expensive; the managers will generally take up to twenty percent (20%) of return on investment plus management fees minus operating expenses depending on the strategy used.

Private Equity is slightly different, but have some similarities to other collective investment schemes. You can start a private equity firm too; it is not hard if you know what you are doing. It is not a venture capital fund, but may provide venture capital at times. Then there is also the angel investor who operates a little different from the others.

Finally, we are down to the conglomerate and I just can't help myself but to talk about Berkshire Hathaway ran by Warren Buffett. There are other conglomerate ran by different people, Mr. Prem Watsa runs Fairfax out of Canada.

I hope you find value with my servings.

FII

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