ALTERNATIVE

INVESTMENT
STRATEGIES
NAME : TALAT MEMON
CLASS : TYBFM
ROLL NO : 50
 REAL ESTATE
• Real estate is probably one of the most well-known and appealing alternative investments.
Why? It appreciates over time. Although this means bigger ROI when it comes time to
sell, there is no “one size fits all” for achieving appreciation. Different property types have
different sources of appreciation. For example, if you invest in a residential property, and
the neighborhood continues to grow and flourish, its value will climb. Conversely, if the
neighborhood decays, its value will decrease. For this reason, it’s important to 
understand the difference between real estate asset classes and property types to ensure
you’re making a worthwhile investment. 
• The market size of the Real Estate Sales & Brokerage industry in the US in 2020 is $166.9
bn
.  Real estate is also 
considered an investment that is inflation protected, or an inflation hedge, making it an
investment that can help diversify your portfolio. There are also tax benefits to buying real
estate, and fix and flip has been a viable strategy for income generation. Getting involved
in real estate development and building is also an investment option. 
HEDGE FUNDS
• A hedge fund is one of the more sophisticated alternative investments.
Here’s how it works: Accredited investors pool their money together and
give it to a hedge fund, the hedge fund then uses different investment
strategies to absorb losses and generate high returns for their investors.
Hedge funds are essentially a vehicle you can use to invest in any of the
areas you’ll find on this list—the difference? You have professionals who’ve
already done the research and have a better idea of what investments will
succeed. One thing to be aware of is that some hedge funds are blind pools,
meaning you don’t know what your money’s being put into. This lack of
transparency is something to consider when choosing a hedge fund.
Remember to read the fine print and be honest about your comfort levels.
 PRIVATE MORTGAGES
• If you’re looking for a lower-risk option that has potentially attractive
yields, private mortgages can be a viable alternative investment. This is
essentially a loan provided to a real estate owner over a 1-5 year
contract. This type of alternative investment is considered low risk since
loans are made at no more than 60-70% of the market value of the
property. Not to mention, since this investment is backed by real estate,
the risk is low if the borrower defaults on the loan. However, this doesn’t
mean the investment shouldn’t be vetted. If you’re interested in private
mortgages, make sure you have someone in your corner who you can
trust to read the fine print and raise any red flags.
VENTURE CAPITAL
• Another alternative investment is venture capital (VC), or pledging an
investment to a smaller company that has long-term potential in
exchange for equity. Venture capital is a subset of private equity and
has a similar transformative aspect. The major difference between the
two is that venture capitalists are along for the long haul, where those
in private equity tend to buy and sell more quickly. Venture capitalists
are also typically wealthy individuals or institutions that carefully
monitor their company’s progress, determine when they’ll release
different rounds of funding, and eventually leave after a merger,
acquisition, or IPO.
COMMODITIES
• Commodities are tangible assets used to create consumer products like
metals, crops, livestock, and more. There are also “soft commodities”
that cannot be stored for long periods of time like cotton, sugar cane,
and coffee. Investors can buy and sell commodities directly on the
stock market or via derivatives such as futures and options.
Commodities are another great alternative investment because they’re
one of the few asset classes that actually benefit from inflation. As
demands for commodities increase, naturally so do their prices which
helps hedge against inflation. 
TAX LIENS
• Also under the real estate umbrella are tax liens. Here’s how it works: If a
property owner fails to pay their taxes, their municipality can sell their tax
liens to be paid off as well as the right to foreclose. Tax liens will often be
auctioned off for investors to take their pick. Investors will then pay off the
taxes, automatically acquiring the right to be paid back with interest from
the property owner. Interest rates vary depending on state and jurisdiction,
but one thing’s for sure—if you’re considering tax liens as an alternative
investment, due diligence is a must. If the property forecloses, the tax lien
holder is the next in line to seize the assets. Before you get excited though,
you’ll want to verify the lien, count the cost of all potential fees, and make
sure the property is in good condition so you can guarantee solid returns. 
PRIVATE COMPANY EQUITY
• Another alternative investment to consider is private company equity.
Not only is there typically less competition to buy equity from a
private company than a public company, but private companies are
also usually smaller, allowing investors to get more involved in the
business and its people that a public company would. In a similar way,
investors in private companies are more likely to be significant
investors early-on, thus, influencing decisions and potentially
producing greater returns in the long run. The downside? These
companies aren’t held to the same transparency standards as public
companies. Before investing, make sure you research your target
company’s performance and financials thoroughly.
PRIVATE EQUITY
• Private equity (PE) is an excellent alternative investment for those
who want to have a highly involved role in changing a company for
the better. The purpose of private equity is to invest growth capital into
new businesses and help them restructure to accelerate growth.
Investing in private equity truly only makes sense for those with a
greater net worth and income since it requires acquiring a company.
However, it’s common for people to band together and invest as a
group. Generally speaking, once the target company is acquired, the
business is restructured to maximize profitability, and then put on the
market to be sold.
 STRUCTURED SETTLEMENT
• Another alternative investment is a structured settlement or a financial agreement
settled for a plaintiff in a personal injury claim or similar lawsuit. Payment plans in
structured settlements can vary on a case by case basis. For example, some may
require a lump sum upfront, where others require smaller amounts over a long
period of time. People use this as an alternative investment by paying for some or
all of the structured settlements to gain a share of the premiums. Investors in
structured settlements can gain peace of mind knowing their payments are
guaranteed by court-ordered contracts and highly regulated insurance companies.
By the same token, investors are completely dependent on the payment schedule,
making illiquidity a concern if the need arises to sell long-term holdings.
EQUIPMENT LEASING
• Equipment leasing funds are pooled alternative investments. This means
you’ll pool your money into a portfolio of capital equipment with other
investors that are then leased to companies. The kinds of equipment could
range anywhere from construction machinery to medical supplies, but it’s
ultimately the sponsor of the fund who makes the decisions. Equipment
leasing funds typically run for 7-10 years until the equipment depreciates
and is sold off. Equipment leasing tends to be a bit riskier since you have
virtually no say in which equipment your sponsor will choose. You also
run the risk of equipment becoming damaged or sitting idle. For this
reason, we recommend doing your homework on your sponsor and
making sure they have a good track record.