Tiptoeing around alternative investments

Some tips to consider when going ‘alt’.

- Gareth van Deventer

Growing up I had a passion for listening to 80s pop music. But not everyone liked being part of the crowd and so “alternative music” was born and became a thing. It seemed so much “cooler” (80s slang) albeit a bit “darker” than pop as the artists brought out the wilder side of music. It was different and different somehow seems more exciting and mysterious, but different is not always properly understood or appreciated.

A little like today in the investment space, traditional run-of-the-mill investing is familiar to the crowd, but the appeal and mystery of alternative investments are certainly gaining traction.

The perception of alternative investments is that they tend to use complicated investment structures, calculations, methodology and assumptions and hence require much more understanding before venturing into this asset class. Things like derivatives, warrants, futures, contracts for difference, exchange-traded notes, and cryptocurrencies, to name but a few, are what typically pop into people’s minds when they consider “alternative investing”.

My first exposure to an “alternative” investment was back in the 1990s when the company I worked for decided to put a hedge in place on their funds to protect losses for investors. Basically, like taking out insurance to protect against an “unforeseen event”, the hedge structure had an additional cost for investors but seemed to do its thing. The hedge worked and limited losses for investors at a time when stock markets fell.