Introduction to Alternative Assets

If so, you’re in the right place. Introducing Alt Investing Made Easy, a new podcast hosted by Roland Wiederaenders and Sarah Florer, two seasoned attorneys and investment advisers with a wealth of experience in alternative assets. Their expertise will guide you through this complex but rewarding investment landscape.

In this blog post, we will summarize the key points from our first webcast episode.  In the future, in addition to their topical episodes dealing with specific matters related to alternative assets, Sarah and Roland plan to host a series of in-depth discussions with industry experts, deal sponsors, and successful investors.

In these first episodes, they delve into the definition, characteristics, and benefits of alternative assets and how they differ from public securities. They also provide an introduction into success stories and case studies of how alternative assets can provide investors with consistent, safe, and attractive returns. By subscribing, you’ll gain access to these valuable insights and more.

In this first episode, Roland and Sarah break down the world of alternative assets in a way that’s easy to understand. They explain how these assets differ from conventional investments and why they’re a crucial part of any investor’s portfolio. They also provide practical examples of the three main classes of alternative assets, making it easier for you to apply this knowledge to your own investment strategy.

What are alternative assets?

Alternative assets are broadly defined as financial assets that do not fall into one of the conventional investment categories, which are stocks, bonds, or cash. Alternative investments include five main categories: hedge funds, private capital, natural resources, real estate, and infrastructure.

Just like conventional investments, alternative assets are structured as investments in securities. Securities are interests in a business entity, such as shares of stock in a corporation or membership interests in an LLC. The definition of a security, as defined by the United States Supreme Court, includes elements such as investment in a common enterprise and the expectation of profit derived from the efforts of others. This implies a distinction between ownership and control of a company and the reliance on the efforts of others to generate income or appreciation.

What are private securities?

Private securities are securities sold pursuant to exemptions from the Securities Act of 1933 registration requirements. Registration is a costly and lengthy process that requires a company to disclose extensive information about its business, financial condition, and risks to the Securities and Exchange Commission (SEC) and the public. Registration also subjects a company to ongoing reporting and compliance obligations.

Private securities are sold by smaller companies where registration of their securities with the SEC would be cost prohibitive. To qualify for an exemption from registration (the most widely used exemption is Rule 506 under Regulation D of the Securities Act), issuers of private securities may only sell their securities to accredited investors, individuals, or entities that meet certain income or net worth thresholds. Accredited investors are those who have a net worth of at least $ 1 million, excluding the value of their primary residence, or have an income of at least $ 200,000 each year for the last two years (or $ 300,000 combined income if married) and have the expectation to make the same amount in the current year. They are presumed to have the financial sophistication and ability to bear the risks of investing in private securities.

What are the benefits of alternative assets?

Alternative assets offer several advantages for investors looking for diversification, higher returns, and alignment of values. Some of the benefits of alternative investments are:

• Alternative assets are less correlated with the public markets, meaning they tend to perform differently and may reduce a portfolio’s overall volatility and risk.
• Alternative assets have the potential to generate significantly higher returns than public securities. They can capture inefficiencies, opportunities, and value creation in the private markets that are not available to the public, offering a promising avenue for investors.
• Alternative assets allow investors to invest in projects that align with their values and create value in society. Whether it’s social impact, environmental sustainability, or innovation, these investments can inspire investors with the potential for positive change.

One key benefit of alternative assets is the level of control and transparency they offer. Investors can establish direct relationships with the managers and sponsors of private securities, gaining access to more information and communication and ultimately feeling more in control of their investments.

What are some examples of alternative assets?

There are many alternative assets, but we will focus on three main classes we specialize in: hedge funds, private equity, and commercial real estate.

Hedge funds are private investment funds that employ various strategies to generate returns, such as short selling, arbitrage, leverage, derivatives, and quantitative analysis. They aim to deliver absolute returns regardless of market conditions and may invest in a wide range of assets, such as stocks, bonds, commodities, currencies, and cryptocurrencies. Hedge funds can be compared to mutual funds, publicly traded funds that typically invest in long-only positions in stocks or bonds. 

• Private equity is a form of capital that invests in private companies by buying out existing shareholders, providing growth capital, or financing leveraged buyouts. Private equity aims to create value by improving the operations, governance, and strategy of the companies it invests in and by exiting at a higher valuation. Private equity can be compared to public equity, which is an investment in the stock of a publicly traded company.
• Commercial real estate involves properties used for business purposes, such as office buildings, retail centers, industrial warehouses, hotels, and multifamily apartments. It aims to generate income from rents, leases, and fees and appreciation from capital gains. Commercial real estate can be compared to real estate investment trusts (REITs), which are publicly traded companies that own and operate a large portfolio of multiple real estate assets.

How can you access alternative assets?

One of the challenges of investing in alternative assets is finding and accessing the best deals and managers in the private markets. Unlike public securities, which are widely available and accessible to trade, private securities are not advertised and require more due diligence and analysis.

That is where we come in. We are a team of experienced and licensed attorneys and investment advisers who specialize in alternative assets and private securities. We help our clients create, sell, and invest in private securities. This involves a range of services, from structuring the investment to drafting legal documents and facilitating the transaction. We also operate a marketing platform where we make offers of private securities through the Internet on behalf of our third-party clients. We have a network of trusted partners and clients who are experts and innovators in their fields, and we provide them with legal and marketing services to raise capital for their deals. We also provide our audience and investors with education and information about alternative assets and private securities, and we invite our clients and guests to share their insights and opportunities on our webcast.

If you want to learn more about alternative assets and private securities, how to diversify your portfolio, and how to achieve your investment goals, please subscribe to our webcast, follow us on social media, and visit our website. We look forward to hearing from you and helping you navigate the world of alternative assets.