What Are Alternative Investments?
In today’s market, investors looking to reduce their exposure to traditional stocks and bonds are turning increasingly to alternative investments.
What are Alternative Investments?
An alternative investment is a financial asset that does not fall into one of the conventional investment categories. Conventional categories include stocks, bonds, and cash. Alternative investments can include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities and derivatives contracts. Real estate is also often classified as an alternative investment.
In today’s market, investors looking to reduce their exposure to traditional stocks and bonds are turning increasingly to alternative investments. Many sophisticated investors are looking at alternative investments such as private equity, real estate, and infrastructure as a way to diversify and stabilize their portfolios. Alternative assets can often provide higher yields and more stability than stocks and bonds.
In the current economic climate, investors want to reduce their exposure to the volatilities of the public market and hedge against inflation by purchasing investments in alternatives such as private real estate equity. For clients around the world who want to move beyond stocks, bonds and cash, alternative investments can be a great addition to their portfolio. Parvis offers many real estate opportunities to achieve that goal.
Why invest in Alternative Investments?
There are multiple investment options beyond stocks and bonds. Alternative investments are less popular to the broader market as they are not publicly traded and not as easily accessible. They can often have increased risk and are therefore not for the novice investor. Generally, alternative assets give investors the ability to add value in a portfolio in a way they don't typically have in the public market. Alternatives are a diversified asset class with a low correlation to stocks and bonds.
Investor takeaways about alternative investments:
- A great way to diversify a portfolio and capitalize on opportunities outside of the public market.
- Have low correlation to the public market, resulting in potentially less volatility.
- Provide both capital growth potential and possible tax benefits.
Private alternative investments aim to outperform traditional asset classes in terms of risk-adjusted returns while having a low correlation to stock markets, resulting in lower volatility. According to a November 2020 estimate by Prequin, investment in alternative assets is projected to grow by 62% from 2020-2025.
Some of our Parvis investment offerings also provide steady cash flow and are linked to inflation, which can provide some protection to the real value of portfolios. Real Estate is an important class of alternative investments and Parvis offers various institutional quality private real estate investment opportunities to both accredited and eligible investors.
Broad appeal of alternative investments
There are a number of reasons why alternative investments might be appealing, but the main one is diversification – the proverbial, “not putting all one’s eggs in one basket” so to speak and spreading the risk amongst multiple asset classes or investments. Some other benefits include:
- Low correlation. One of the greatest advantages that alternative investments offer is low correlation with traditional asset classes. When the stock market is underperforming, private alternative investments tend to perform very well.
- Lower volatility. Given that alternative investments are less exposed to public markets, the impact of public market volatility is usually lower.
- Inflation hedges. Alternatives, such as real estate, can be effective in hedging inflation.
- Typically, higher returns. Given that alternative investments typically have a higher level of risk, they also offer the potential for higher returns.
Limitations of alternative investments
For every type of investment, certain limitations exist which include:
- Lack of transparency. Since most alternatives are not regulated by public markets, investment information is often not readily available. To improve this, Parvis provides real time access to your investor account that includes the status of your investment and all the investment details. We set out to be fully transparent with all our investors across all our projects.
- Illiquidity. Alternatives such as private real estate can be more difficult to sell than many other investment types. They typically have lockups (1-5 years for private real estate) that commit investors to a defined period of investment. Our Parvis Secondary Market alleviates this concern by providing an opportunity to sell your investment before the end of its term.
- High minimum investments. Historically, alternatives were not designed with the average investor in mind, so minimum investment requirements were too high for most investors. To improve this, Parvis provides investment opportunities on select projects with a minimum investment as low as $5,000.
- Greater risks. With the potential for high returns comes higher risk. Many alternative investments may involve risky strategies like short selling or trading complex derivatives. To alleviate this risk, Parvis offers the possibility of balancing your portfolio under 4 investment strategies with varying levels of risk.
Alternatives are no longer just for institutional investors
Alternative assets have traditionally been the wheelhouse of large institutional investors, such as pension funds and investment managers due to their complex financial structures. Changing technology, including blockchain technology and regulations, have opened up the space to other types of investors including accredited investors, eligible investors, high-net worth individuals and smaller family offices. Many investment professionals and exempt market dealers such as Parvis have simplified the access to these investment opportunities making it more accessible to a broader range of investors. Specifically, Parvis makes it easy to set up your account, review investment opportunities, sign the documents and transfer the funds. We’re putting you in the driver seat in terms of control and transparency.
How to Buy Alternative Investments
Buying alternative investments such as private real estate deals has not always been easy for non-institutional investors. This is one reason why most investors have stuck to traditional asset classes. It also requires some due diligence and research by the investor as the risks tend to be greater. Today, there are many alternative investment mutual funds and exchange-traded funds (ETFs) available, but these often come with higher fees. With Parvis however, we aim to make the process as quick and easy for accredited and eligible investors as possible. By logging onto the Parvis website and creating an account, an investor is able to access all our projects and gain a deeper understanding about which ones might be suitable for them for investment. Within a few minutes of inputting your information, you could be investing on the Parvis platform and accessing high quality real estate projects from across Canada.
Disclaimer: The information provided within this publication is for general information purposes only, and does not constitute an offer of, or solicitation for, the purchase and sale of any securities under any circumstances. Commissions, trailing commissions, management fees and expenses all may be associated with investments in exempt market products. Please read the confidential offering documents before investing, as they contain important information on fees and risk factors. The indicated rate of return is the annualized return including changes in unit value and reinvestment of all distributions and does not consider sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Exempt market products are not guaranteed, their values change frequently, and past performance may not be repeated. There is no active market through which the securities may be sold, and redemption requests may be subject to monthly redemption limits. The payment of distributions is not guaranteed and may fluctuate. The payment of distributions should not be confused with an exempt market product’s performance. Distributions paid as a result of capital gains realized by an exempt market product, and income and dividends earned are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero. Prospective investors must make an independent assessment of such matters in consultation with their own professional advisors. Nothing herein should be construed as investment, legal, tax, regulatory or accounting advice. Parvis Invest Inc. and Parvis GP Inc. (“Parvis”) is an Exempt Market Dealer registered in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec, and Saskatchewan. Sales of interests in any investments offered by Parvis are only made to certain eligible investors pursuant to regulatory requirements and available exemptions. Some of the investment products offered by Parvis are from related issuers. A full list of issuers related to Parvis and details of the relationship between them is available upon request.