Still Losing Money in the Stock Market? It’s Time to Learn About Private Investments - It’s Not Just For the Uber Wealthy Anymore.
According to Preqin, the global assets under management (AUM) in alternative investments reached $13 trillion in 2021, up from $9.1 trillion in 2017. This growth was driven by a number of factors.
Interest rates and volatility, which have plagued investors looking to earn even a reasonable return on their money with more traditional investment assets like stocks, ETFs and even bonds. The S&P 500 index is down -5.47% from this time last year and the Nasdaq index (QQQ) is down even more (-5.86%) over this same period.
The rise of the middle class in developing countries has created a new pool of potential investors, all looking for ways to grow their wealth, and they are increasingly turning to alternative investments. This trend is pronounced among younger investors - think Millennials and GenZ - who are less conditioned to invest in traditional markets like stocks. Deregulation is a contributing factor here, which we explore below in greater depth.
Technology has also made it easier for investors to access alternative investments. In the past, it was difficult for individual investors to break into alternative assets, such as private equity, commercial real estate, and fine art. However, the rise of digital platforms and fractional ownership has made it possible for anyone to invest in these assets.
The growth of the private investment and alternative assets market is expected to continue in the years ahead.
Alternative asset classes are investments that fall outside of the traditional asset classes of stocks, bonds, and cash. These investments can include real estate, commodities, and private equity. Alternative asset classes are often seen as a way to diversify a portfolio and generate higher returns than traditional investments.
Investing in commercial real estate
Commercial real estate is a type of alternative asset class that includes properties used for business purposes, such as office buildings, retail stores, parking structures and warehouses. Commercial real estate can be a good investment for those who are looking for new ways to diversify and generate income.
There are a number of ways to invest in commercial real estate. You can buy property outright, invest in a real estate investment trust (REIT), or invest in a private equity fund that invests in commercial real estate.
The Benefits of Investing in Commercial Real Estate
There are a number of benefits to investing in commercial real estate. These benefits include:
Diversification: Commercial real estate can help you diversify your portfolio and reduce your risk.
Income potential: Commercial real estate can generate income from rent and appreciation.
Inflation protection: Commercial real estate can help you protect your wealth from inflation.
Tax benefits: There are a number of tax benefits available to investors in commercial real estate.
The risks of investing in commercial real estate
There are also a number of risks associated with investing in commercial real estate. These risks include:
Market volatility: The commercial real estate market can be volatile, and prices can fluctuate significantly.
Liquidity risk: Commercial real estate is an illiquid asset, which means it can be difficult to sell quickly.
Management risk: If you buy property outright, you will be responsible for managing the property. This can be a time-consuming and expensive process.
Deregulation of Private Investment
Deregulation in the private investment marketplace has been a hot topic of debate in recent years. Some argue that deregulation will lead to increased investment and economic growth, while others worry that it will lead to increased risk and fraud.
Optimists see deregulation as a democratization of wealth, innovation and opportunity. The cynical view paints deregulation as a risk to unsophisticated investors, ranging from fraud to simple overexposure in a given asset class.
For example, without regulations, investors may be more likely to invest in risky assets, such as derivatives. This can lead to financial instability if these assets fail like they did in 2008.
Ultimately, the impact of deregulation on the private investment marketplace is a complex issue. There are both potential benefits and risks to consider. It is important to weigh these factors carefully before making a decision about whether or not to support deregulation.
Range of Private Investment
The range of asset classes is vast, and there is likely to be an investment opportunity that fits every investor's risk tolerance and investment goals. Here is a quick list of some of the most common private investment options, aside from real estate:
Venture capital is a type of investment that is made in early-stage companies with high growth potential. Venture capitalists typically provide capital to companies in exchange for equity, or ownership, in the company.
Private equity is a type of investment that is made in privately held companies, or companies that are not traded on a public stock exchange. Private equity firms typically purchase a controlling interest in a company and then work to improve its operations and profitability.
Debt financing is a type of investment that is made in the form of debt, or loans. Debt financing can be used to finance a variety of activities, such as starting a business, expanding a business, or purchasing equipment.
Commodities are raw materials, such as oil, gas, gold, and silver. Commodities can be a good investment because they can provide a hedge against inflation and can also provide income through trading.
Conclusion
Every investor must ultimately decide what opportunities fit their risk tolerance and best compliment their current portfolio. Commercial real estate can be a good investment for those who are looking for a way to diversify and generate income at the same time. However, it is important to understand the risks and potential rewards of the investment before you invest.
NOYACK offers investment reports and the Noyack Investing Club (NICL), to be your guide to the private investment universe. We decode, uncover, explain, and support a community centered around building your optimal 30% allocation to private investments aka alternative investments.