Displaying items by tag: alternatives

In a piece for AdvisorEdge, James Langton discusses how banks are tightening their lending standards which could present an opportunity for alternative investment managers. According to a report by Fitch Ratings, there is a surge in interest for private debt from borrowers. In North America, private credit funds’ assets under management increased from $242.7 billion in 2010 to over $1 billion at the start of the year. 

And, this trend should only accelerate in the coming years especially as regional banks are a key source of funding, and many are struggling with an inverted yield curve. The crisis in regional banks earlier this year underscored their perilous position. Thus, it’s not surprising to see a flurry of new private credit funds. In the second quarter, 34 new funds were launched, raising $71.2 billion, more than double what was raised in the first quarter. 

Private credit is more insulated from rising rates due to its reliance on floating rate-loans. Additionally, default rates have remained at historically low levels at 1.6% in Q2 and 2.2% in Q1, indicating that the overall economy remains resilient and rewarding investors in these funds. 

Finsum: Funding from banks is increasingly difficult to access given tighter credit standards and challenges for regional banks. This is creating an opportunity for alternative investment managers as private credit funds step into the void.

In one corner of the investment world: the traditionalists; in the other, the alternatives.

A survey of 191 investment professionals from February 14, 2023 to April 7of this year showed a mounting interest in alternative investments among professionals, at 28%, predating the pandemic, according to thestreet.com.

"As traditional stock and bond asset classes suffered from losses and volatility in 2022, it's not surprising that interest in alternative investments increased among financial professionals. However, overall use of alternatives remains relatively low,” 2023 FPA President James Lee, CFP, CRPC, AIF, said in a press release.

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While alternative investments are catching the attention of some financial advisers, the survey highlighted that over 90 percent of investment professionals currently use or recommend exchange-traded funds (ETFs).

Unlike traditional assets, of course, alternative investments aren’t subject to US Securities and Exchange Commission regulatory requirements, according to coresignal.com. That’s significant since it translates in further room for speculative investment practices.

There’s a scant link between alternative assets and the stock market – not to mention other conventional investments, according to coresignal.com. Consequently, they’re not required to react to market conditions as they shift. For conventional securities, it’s a different story.

Alternative investments, fueled by high fees and minimums, typically are accessible to institutional investors exclusively.

Until a couple of years ago, the standard playbook for any investor looking to secure their retirement was a mix of stocks and bonds. But, this traditional style is being challenged especially as stocks and bonds have fared poorly in today’s world of stubborn inflation and high rates. 

This challenging environment is leading to more interest and demand for alternative investing especially as the asset class provided diversification and healthy returns in 2022 when both stocks and bonds were down double-digits. For Kiplinger’s, Tory Reiss covers the pros and cons of alternative investing for prospective retirees. 

In terms of the drawbacks, Reiss mentions a lack of liquidity which means that prices can drop especially during periods of market volatility especially in less mature markets. Another is that these investments typically have higher fees and costs which can undermine long-term performance. Further, there is less transparency and regulation in the space which means that there is more risk. 

However, there certainly are some positives such as the increase in diversification especially in rising-rate environments which have proven to be headwinds for stocks and bonds. There is also a potential for greater returns while also providing a hedge against inflation. 

Overall, investors should be open to some allocation to alternatives but should understand the risks and conduct proper due diligence especially in newer asset classes with less of a track record and regulatory framework.

Finsum: Alternative investments performed well in 2022 while stocks and bonds both saw steep losses. This is resulting in a surge of interest in the asset class. Here are some pros and cons to consider. 

The financial advisor space is extremely competitive which means it’s quite important to differentiate and identify what makes you unique. This is even more the case given today’s macroeconomic reality of high rates, inflation, and uncertainties. Advisors and investors may have been spoiled by the last couple of decades of low rates, providing a generous tailwind for stocks and bonds.

For WealthProfessional, Steve Randall discusses why becoming comfortable with alternative investments could fuel growth for advisors in this new era. Given that the upside for stocks and bonds is limited in this era, there is likely to be more opportunities in areas like responsible investing and alternatives, where the landscape is less defined.

In addition to these trends, Randall also identifies actively managed ETFs, virtual assets, and impact investing as other growth areas that could provide differentiation for advisors. 

Overall, he believes that asset managers will introduce new products in these areas in recognition of growing interest and demand. Over the last couple of years, alternative investments have generated positive returns and dampened portfolio volatility while stocks and bonds have delivered negative returns. 

This outperformance should continue especially if rates and inflation remain elevated, and advisors are recommended to get familiar with new offerings. 

Finsum: Alternative investments are gaining popularity for a variety of reasons. But, the most important is its outperformance in the last couple of years while stocks and bonds lagged.

Generation Z is defined as being born in between the mid 90s and mid 2010s. Older members of this group are starting their careers and beginning their investing journeys. This group is shaped by events like the 2008 financial crisis and the pandemic. They also are the first generation to grow up with the Internet and have a much more intuitive relationship with technology especially when it comes to managing finances.

In a piece for USA Today, Jon Stojan explains why alternative investments are gaining traction with Generation Z. Some of the unconventional options include investing in art, wine, farmland in addition to more known options like cryptocurrencies and precious metals. 

According to a survey from the Lansons Group, only 10% of Americans have invested in alternative assets but 30% of Gen Z investors have done so, highlighting the appeal of alternatives.

The most commonly cited reasons are a potential for high returns, hedging against inflation, and interest in tangible, enduring value. However, there are some drawbacks to these asset classes especially as their performance is unproven through multiple market cycles unlike stocks and bonds. Additionally, they tend to come with higher costs and less liquidity.

Finsum: Alternative investments are gaining traction with Generation Z investors who are looking to invest in asset classes beyond just stocks and bonds. Examples include cryptocurrencies, precious metals, artwork, farmland, and wine.