Alternative investments

Alternative investments

Alternative investments have gained popularity recently as investors seek to diversify their portfolios and achieve potentially higher returns. Unlike traditional investments such as stocks and bonds, alternative investments include many assets. These investments are often considered high-risk due to their illiquidity, lack of transparency, and complexity. However, they can provide the potential for higher returns, diversification, and a hedge against inflation. Understanding alternative investments’ risks and potential returns is crucial for investors looking to add these assets to their portfolios. 

What is an alternative investment? 

An alternative investment is made in non-traditional assets like cash, bonds, and equities. Alternative investments are often considered high-risk due to their illiquidity, lack of transparency, and complexity. However, they can offer the potential for higher returns and diversification to a portfolio. Alternative investments are typically only available to accredited or institutional investors due to their high-risk nature and limited accessibility. 

Understanding alternative investments 

Alternative investments are a type of investment that differ from traditional investments, such as stocks, bonds, and cash. These investments include private equity, hedge funds, real estate, commodities, art and collectables, and cryptocurrencies. Alternative investments are often considered high-risk due to their illiquidity, lack of transparency, and complexity. However, they can provide higher returns and diversification to a portfolio. Alternative investments are typically only available to accredited or institutional investors due to their high-risk nature and limited accessibility. Investing in alternative investments requires more expertise and due diligence than traditional investments. These investments can be complex and require a deep understanding of the risks involved. It is important for investors to carefully evaluate the risks and potential returns before investing in alternative investments. 

Types of alternative investments 

The types of alternative investments are: 

  • Private equity 

This involves investing in private companies that are not publicly traded. Institutional investors, high-net-worth individuals, and private equity firms typically make private equity investments. 

  • Hedge funds 

Due to their significant risk, hedge funds are normally only accessible to accredited investors. 


  • Real estate 

This entails making investments in tangible assets like residential or commercial real estate. Rental income and property value growth are benefits of real estate investments. 


  • Commodities 

These raw materials or primary agricultural products can be traded on commodity exchanges. Examples of commodities include gold, oil, and wheat. 

  • Venture capital 

This involves investing in early-stage companies that have high growth potential. Venture capital firms provide startup funding in exchange for company equity. 

  • Infrastructure 

This involves investing in physical assets such as roads, bridges, and airports. Infrastructure investments can provide stable returns and are typically made by institutional investors. 

Advantages of alternative investments 

The advantages of alternative investments are: 

  • Alternative investments diversify a portfolio, which helps reduce overall risk. These investments often have a low correlation with traditional investments such as stocks and bonds, meaning they may perform well when other investments are underperforming. 
  • Alternative investments can offer higher potential returns than traditional investments. For example, private equity investments may provide higher returns than publicly traded stocks. 
  • Alternative investments like commodities and real estate can hedge against inflation. The value of these assets could climb along with prices. 
  • Alternative investments provide access to unique opportunities that traditional investments may not offer. 
  • Alternative investments can be customised to meet an investor’s needs and goals. For example, a private equity investment can be structured to provide income or capital appreciation. 
  • Alternative investments are often less susceptible to market volatility than traditional investments. This can provide stability to a portfolio during periods of market turbulence. 
  • Alternative investments can stabilise a portfolio by providing a source of steady income or long-term appreciation. This can help balance out the volatility of other investments in the portfolio. 

Disadvantages of alternative investments 

The disadvantages of alternative investments are: 

  • Alternative investments are often considered high-risk due to their illiquidity, lack of transparency, and complexity. Investors may lose their entire investment if it does not perform as expected or becomes illiquid. 
  • Alternative investments often come with high fees, including management fees, performance fees, and other expenses. These fees can significantly reduce an investor’s returns. 
  • Many alternative investments are illiquid, meaning they cannot be easily bought or sold. This can make it difficult for investors to exit their investments or access their funds when needed. 
  • Many alternative investments are not subject to the same regulatory oversight as traditional investments. This can make it difficult for investors to understand the risks involved in the investment fully. 
  • Alternative investments often need more transparency, meaning investors may need access to all the information they need to make informed investment decisions. 
  • Alternative investments can be complex and difficult to understand. This can make it difficult for investors to evaluate the investment’s risks and potential returns. 
  • Alternative investments are often only available to accredited investors or institutional investors. This can limit the accessibility of these investments to individual investors. 

Frequently Asked Questions

Alternative investments typically require more expertise and due diligence than traditional investments. Investors can invest in alternative investments through private equity firms, hedge funds, real estate investment trusts, or REITs, or crowdfunding platforms. It is important to carefully evaluate the investment’s risks and potential returns before investing. 

Alternative investments can have complex tax implications. Investors may be subject to different tax rates, deductions, and reporting requirements depending on the investment. For example, real estate investments may qualify for tax deductions, while cryptocurrencies may be subject to capital gains taxes. 

The key characteristics of alternative investments include high risk, illiquidity, lack of transparency, complexity, the potential for higher returns, diversification, limited accessibility, and customisation. 

Alternative investments can be useful to investors by providing diversification, the potential for higher returns, customizability, and a hedge against inflation. 

The regulatory standards for alternative investments vary depending on the type of investment. Some alternative investments, such as hedge funds and private equity, are subject to less regulatory oversight than traditional investments. However, certain alternative investments may be subject to specific regulations, such as real estate investment trusts and crowdfunding investments. 

Related Terms

    Read the Latest Market Journal

    From $50 to $100: Unveiling the Impact of Inflation

    Published on Apr 12, 2024 22 

    In recent years, inflation has become a hot topic, evoking strong emotions as the cost...

    Japan’s Economic Resurgence: Unveiling the Tailwinds Behind Nikkei 225’s Record Leap

    Published on Apr 11, 2024 45 

    Source: eSignal, Intercontinental Exchange, Inc. In the heart of Japan’s economic landscape, the Nikkei 225...

    Weekly Updates 8/4/24 – 12/4/24

    Published on Apr 8, 2024 88 

      This weekly update is designed to help you stay informed and relate economic and...

    What Makes Forex Trading Attractive?

    Published on Apr 2, 2024 170 

    In a world where the click of a button can send goods across oceans and...

    Weekly Updates 1/4/24 – 5/4/24

    Published on Apr 1, 2024 93 

    This weekly update is designed to help you stay informed and relate economic and company...

    How to soar higher with Positive Carry!

    Published on Mar 28, 2024 123 

    As US Fed interest rates are predicted to rise 6 times this year, it’s best...

    Why 2024 Offers A Small Window of Opportunity and How to Position Yourself to Capture It

    Published on Mar 28, 2024 170 

    With the Federal Reserve (FED) finally indicating rate cuts in 2024, we witnessed a significant...

    Weekly Updates 25/3/24 – 29/3/24

    Published on Mar 25, 2024 73 

    This weekly update is designed to help you stay informed and relate economic and company...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066