Alternative Funds
Alternative funds invest in assets outside traditional stocks and bonds, like real estate, commodities, and private equity, offering diversification and unique risk-return profiles.
What Are Alternative Funds?
Alternative funds are investment vehicles that allocate capital to asset classes beyond traditional stocks, bonds, or cash. These funds may invest in real estate, commodities, private equity, hedge funds, infrastructure, or even collectibles. The aim is to provide investors with access to a broader range of opportunities and strategies that are not typically available in conventional mutual funds or ETFs.
How Do Alternative Funds Work?
Like traditional mutual funds or ETFs, alternative funds pool money from multiple investors and are managed by professional fund managers. However, alternative fund managers have a wider array of tools and strategies at their disposal, including the use of leverage, derivatives, short selling, and investments in less liquid or private markets. Depending on the fund structure, investors may buy shares or units and participate in the fund’s overall performance.
Why Are Alternative Funds Important for Investors?
Alternative funds are valued for their ability to diversify a portfolio and reduce correlation to broader equity and bond markets. They can offer exposure to unique sources of return, help manage risk, and provide tailored risk profiles depending on the strategy and mandate. For institutional investors and family offices, alternative funds can be a way to access specialized expertise and investment opportunities that are otherwise difficult to reach.
Example: Alternative Funds in Practice
A pension fund allocates a portion of its capital to an alternative fund focused on private equity and real estate. This fund invests in a mix of office buildings, infrastructure projects, and privately held companies. By doing so, the pension fund gains exposure to assets that don’t move in lockstep with public markets, helping to smooth returns and manage risk over the long term.
When Should You Consider Alternative Funds?
Alternative funds are especially relevant when:
You want to diversify beyond traditional asset classes
Seeking higher return potential or lower correlation with public markets
Managing institutional or high-net-worth portfolios with longer time horizons
Accessing specialized strategies or illiquid assets not available in standard funds
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