The alternative investment industry has continued to demonstrate strong growth throughout 2015 and the first half of 2016. In a recent survey by Bank of New York Mellon Corp., investors showed a greater interest in investing in alternatives. In fact, more than one-third of investors surveyed said they would increase allocations to alternative investments in 2017.
The increase in interest in alternative investments is driven by investor demand. People are beginning to look at opportunities across the globe to diversify their portfolios. They are looking to include a wider range of asset classes that will generate strong returns, reduce volatility, hedge against inflation, and access reliable income sources.
For decades, traditional investing options delivered on their promise of generating consistent returns on investment. But now, the landscape has changed for investors. The Great Recession that began in 2008 introduced an environment of extended low interest rates that has nearly wiped out expected returns on bonds and cash investments. In doing so, it has driven home the need for greater diversification.
The beauty of diversification is it’s about as close as you can get to a free lunch in investing. – Barry Ritholtz
Increasingly, affluent, high-net-worth investors across the globe are using alternative investments in their portfolios over and above stocks, bonds, and cash investments. Alternative products like investing in shipping containers, allow investors to tailor the way they extract return and the shape of risk they are comfortable with. Not only can this be helpful from a risk management perspective, it is a way for smart investors to create a volatility exposure that protects other parts of their portfolio.
One key advantage of alternative assets is that they have different, and asymmetric, risk/return profiles. This combination creates very powerful diversification. Because of this positive behavior, alternative asset classes such as private equity, commodities and hard assets, infrastructure investments, and the like, are gaining popularity rapidly. Estimates see the global alternative investment pool of assets under management to be in excess of US$10 trillion and still rising.