Alternative investment

An alternative investment or alternative investment fund (AIF) is an investment or fund that invests in asset classes other than stocks, bonds, and cash. The term is a relatively loose one and includes tangible assets such as precious metals,[1] art,[2] wine, antiques, coins, or stamps[3] and some financial assets such as real estate, commodities, private equity, distressed securities, hedge funds, carbon credits,[4] venture capital, film production,[5] financial derivatives, and cryptocurrencies. Investments in real estate, forestry and shipping are also often termed "alternative" despite the ancient use of such real assets to enhance and preserve wealth.[6] In the last century, fancy color diamonds have emerged as an alternative investment class as well.[7] Alternative investments are to be contrasted with traditional investments.

Embossedgreenshilling1847scott5die2
A British 1 shilling embossed stamp, typical of the type included in an investment portfolio of stamps.

Research

As the definition of alternative investments is broad, data and research varies widely across the investment classes. For example, art and wine investments may lack high-quality data.[8] The Goizueta Business School at Emory University has established the Emory Center for Alternative Investments to provide research and a forum for discussion regarding private equity, hedge fund, and venture capital investments.

Access to alternative investments

In recent years, the growth of alternative finance has opened up new avenues to investing in alternatives. These include the following:

Equity crowdfunding

Equity crowdfunding platforms allow "the crowd" to review early-stage investment opportunities presented by entrepreneurs and take an equity stake in the business. Typically an online platform acts as a broker between investors and founders. These platforms differ greatly in the types of opportunities they will offer up to investors, how much due diligence is performed, degree of investor protections available, minimum investment size and so on. Equity crowdfunding platforms have seen a significant amount of success in the UK and, with the passing of JOBS Act Title III in early 2016, are now picking up steam in the United States.

Investor-led crowdfunding

The investor-led model was introduced by UK-based crowdfunding platform SyndicateRoom and makes it necessary for any startup seeking funding to first be vetted by an experienced investor that is also investing a significant amount (25% or more) of the target round.

SEIS and EIS funds

Only available in the UK, SEIS funds and EIS funds present a tax-efficient way of investing in early-stage ventures. These work much like venture capital funds, with the added bonus of receiving government tax incentives for investing and loss relief protection should the companies invested in fail. Such funds help to diversify investor exposure by investing into multiple early ventures. Fees are normally charged by the management team for participating in the fund, and these can end up totaling anywhere between 15% and 40% of the fund value over the course of its life.

Private equity

Private equity consists of large-scale private investments into unlisted companies in return for equity. Private funds are typically formed by combining funds from institutional investors such as high-net-worth individuals, insurance companies, and pension funds. Funds are used alongside borrowed money and the money of the private equity firm itself to invest in businesses they believe to have high growth potential. In Europe, venture capital, buy-ins and buy-outs are considered private equity.

Infrastructure as an asset class

The notion of “infrastructure as an asset class” has grown steadily in the past seven years.[9][10] But, so far, this development has been the preserve of institutional investors: pension funds, insurance companies and sovereign wealth funds, with very limited access to high-net-worth investors (except a few large family offices).

Art

In a 1986 paper, William Baumol used the repeat sale method and compared prices of 500 paintings sold over 410 years before concluding that the average real annual return on art was 0.55%.[11] Another study of high-quality oil paintings sold in Sweden between 1985 and 2016 determined the average return to be 0.6% annually.[12][13] However, art gallerists are sometimes ambivalent to the idea of treating artwork as an investment.[14] Art is also notoriously difficult to value, and there are quite a few factors to bear in mind for art valuation.

Investors

The "Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003", based on 2002 data, showed high-net-worth individuals, as defined in the report, to have 10% of their financial assets in alternative investments. For the purposes of the report, alternative investments included "structured products, luxury valuables and collectibles, hedge funds, managed futures, and precious metals".[15] By 2007, this had reduced to 9%.[16] No recommendations were made in either report about the amount of money investors should place in alternative investments.

Gold bullion 2
A Good Delivery bar, the standard for trade in the major international gold markets.

Characteristics

Alternative investments are sometimes used as a way of reducing overall investment risk through diversification.

Some of the characteristics of alternative investments may include:

  • Low correlation with traditional financial investments such as stocks and bonds
  • It may be difficult to determine the current market value of the asset
  • Alternative investments may be relatively illiquid (see "liquid alts")
  • Costs of purchase and sale may be relatively high
  • There may be limited historical risk and return data
  • A high degree of investment analysis may be required before buying

Liquid alternatives

Liquid alternatives ("alts") are alternative investments that provide daily liquidity. Liquid alternative investments should produce returns uncorrelated to GDP growth, must have protection against systemic market risk and should be too small to create new systemic risks for the market.[17] Hedge funds may be included in this category; however, traditional hedge funds may have liquidity limitations, and the term is usually used for registered mutual funds which use hedge fund strategies such as long-short equity investments.[18]

United States

Liquid alternatives became popular in the late 2000s, growing from $124 billion in assets under management 2010 to $310 billion in 2014.[19] However, in 2015 only $85 million was added, with 31 closed funds and a high-profile underperformance by the largest long-short equity fund at the time, Marketfield Fund.[19]

In 2014 there were an estimated 298 liquid alternative funds with strategies such as long-short equity funds; event driven, relative value, tactical trading (including managed futures), and multi-strategy. This number does not include option income funds, tactical shorting and leveraged indexed funds.[18]

There has been expressed skepticism over the complexity of liquid alts and the lack of able portfolio managers.[20] One of the world's largest hedge fund managers, AQR Capital, began offering funds in 2009,[21] and grew from $33 billion in assets under management (AUM) in 2010 to $185 billion in AUM in 2017 driven in part by marketing mutual-fund like products with lower fees.[22] As of 2016, AQR Capital was the largest manager of liquid alts.[23]

See also

References

  1. ^ Investing, Intelligent. "Five Alternative Investments To Protect Your Wealth From Inflation". Retrieved 7 January 2017.
  2. ^ Coslor, Erica; Spaenjers, Christophe (2016). "Organizational and epistemic change: The growth of the art investment field". Accounting, Organizations and Society. 55: 48–62. doi:10.1016/j.aos.2016.09.003.
  3. ^ Greenwood, By John (6 October 2008). "First class returns for alternative investments". Retrieved 7 January 2017.
  4. ^ "FAQs - The Gold Standard". Retrieved 7 January 2017.
  5. ^ Shelly Schwartz, "Investing In The Big Screen Can Be A Profitable Story", CNBC, 18 October 2010. Retrieved 29 October 2011. http://m.cnbc.com/id/39342145/Investing_In_The_Big_Screen_Can_Be_A_Profitable_Story Archived here.
  6. ^ "Invest in a forest". 24 August 2007. Retrieved 7 January 2017.
  7. ^ "Fancy Color Diamonds to remain the top Wealth Concentration Vehicle". Retrieved 6 February 2017.
  8. ^ "Alternative Investments - What is the best way to invest money?". Retrieved 7 January 2017.
  9. ^ WPC Conference Committee (9 February 2012). "Infrastructure As A New Asset Class for Pensions and SWFs" (PDF). 2nd Annual World Pensions Forum, Roundtable led by Arbejdsmarkedets TillægsPension (ATP), Denmark’s National Supplementary Pension. Retrieved 17 August 2017.
  10. ^ Firzli, M. Nicolas J. (24 May 2016). "Pension Investment in infrastructure Debt: A New Source of Capital for Project Finance". World Bank (Infrastructure and PPPs Blog). Washington, DC. Retrieved 9 August 2017.
  11. ^ Baumol, William (May 1986). "Unnatural Value: Or Art Investment as Floating Crap Game". The American Economic Review. 76 (2): 10–14. JSTOR 1818726.
  12. ^ Kundu, Dennis; Raza, Alexander (2016). "What drives the value of art?". Stockholm School of Economics.
  13. ^ Modig, Karolina (4 February 2017). "Ny svensk studie: Konst en dålig investering". Svenska Dagbladet (in Swedish).
  14. ^ E, Coslor (1 January 2010). "HOSTILE WORLDS AND QUESTIONABLE SPECULATION: RECOGNIZING THE PLURALITY OF VIEWS ABOUT ART AND THE MARKET". Economic Action in Theory and Practice: Anthropological Investigations. Research in Economic Anthropology. 30. pp. 209–224. doi:10.1108/S0190-1281(2010)0000030012. ISBN 978-0-85724-117-7.
  15. ^ Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003, p.12. Retrieved 28 March 2010.
  16. ^ Cap Gemini Merrill Lynch World Wealth Report 2008, p.14. Retrieved 28 March 2010.
  17. ^ "The Definition of A Liquid Alternative". Advent Alternatives. Retrieved 7 January 2017.
  18. ^ a b "Drowning in Liquid Alts | IMPACT 2014 content from WealthManagement.com". 30 March 2015. Archived from the original on 30 March 2015. Retrieved 16 June 2016.
  19. ^ a b Krouse, Sarah (31 December 2015). "The Year the Hedge-Fund Model Stalled on Main Street". Wall Street Journal. ISSN 0099-9660. Retrieved 16 June 2016.
  20. ^ Benjamin, Jeff. "As liquid-alt mutual funds proliferate, some question their value". Retrieved 7 January 2017.
  21. ^ "AQR hedging its bets with big mutual fund plan". Reuters. 24 June 2009. Retrieved 15 October 2017.
  22. ^ Vardi, Nathan. "Inside The Booming Financials Of Billionaire Cliff Asness' AQR Capital Management". Forbes. Retrieved 15 October 2017.
  23. ^ Smith, Randall (15 September 2016). "Investors Stick With Assets That Mimic Hedge Funds". New York Times. ISSN 0362-4331. Retrieved 15 October 2017.

Further reading

  • H. Kent Baker and Greg Filbeck (2013). Alternative Investments: Instruments, Performance, Benchmarks and Strategies. John Wiley & Sons. ISBN 978-1-118-24112-7.
  • David M. Weiss (2009). Financial Instruments: Equities, Debt, Derivatives and Alternative Investments. Portfolio. ISBN 978-1-59184-227-9.
  • How To Invest In Stamps And Coins. Quick Easy Guides. 2008. ISBN 978-1-60620-661-4.

External links

ASOS.com

ASOS plc ( AY-soss) is a British online fashion and cosmetic retailer. The company was founded in 2000 in London, primarily aimed at young adults. The website sells over 850 brands as well as its own range of clothing and accessories, and ships to over 200 countries from fulfilment centres in the UK, US and Europe.Despite deprecating its original meaning (AsSeenOnScreen), ASOS is still written as an uppercase acronym; the exception to the rule is the new logo designed by Ben Lewin in 2008, where it is stylistically shown all in lower case.

ASOS' headquarters are in Camden Town, at Greater London House. As of 2013, their main fulfilment centre is in Barnsley, South Yorkshire, where they employ 3,000 workers. The customer care department is based in Leavesden, near Watford, in southwest Hertfordshire.

Alternative Investment Fund Managers Directive 2011

The Alternative Investment Fund Managers Directive 2011/61/EU (or "AIFMD" for short) is an EU law on the financial regulation of hedge funds, private equity, real estate funds, and other "Alternative Investment Fund Managers" (AIFMs) in the European Union. The Directive requires all covered AIFMs to obtain authorisation, and make various disclosures as a condition of operation. It followed the global financial crisis. Before, the alternative investment industry had not been regulated at EU level.It was reported in May 2014 that only one-third of EU member states had successfully implemented the directive into law. As of 2014, the countries that had transposed AIFMD into law include Cyprus, the Czech Republic, the United Kingdom, Luxembourg, (Germany), France, Malta and Ireland. In December 2014, the European Commission issued a formal warning to countries including Spain, Latvia and Poland for not complying with AIFMD implementation.

Alternative Investment Market

AIM (formerly the Alternative Investment Market) is a sub-market of the London Stock Exchange that was launched on 19 June 1995. It allows smaller, less-viable companies to float shares with a more flexible regulatory system than is applicable to the main market.

At launch, AIM comprised only 10 companies valued collectively at £82.2 million. By 2017, over one thousand companies comprise the sub-market, with an average market cap of £80 million per listing. AIM has also started to become an international exchange, often due to its low regulatory burden, especially in relation to the US Sarbanes–Oxley Act (though only a quarter of AIM-listed companies would qualify to be listed on a US stock exchange even prior to passage of the Sarbanes–Oxley Act). As of December 2005, over 270 foreign companies had been admitted to the AIM.

The FTSE Group maintains three indices for measuring the AIM, which are the FTSE AIM UK 50 Index, FTSE AIM 100 Index, and FTSE AIM All-Share Index.

Codemasters

The Codemasters Software Company Limited, doing business as Codemasters, is a British video game developer and publisher based in Southam, England. Founded by brothers Richard and David Darling in October 1986, Codemasters is one of the oldest British game studios, and in 2005 was named the best independent video game developer by magazine Develop.

Eldridge Industries

Eldridge Industries LLC is a private equity investment firm headquartered in Greenwich, Connecticut, with offices in New York, London and Beverly Hills. The firm invests in businesses across several industries, including, media, sports, hospitality, insurance, real estate development and asset management.

GCM Resources

GCM Resources plc (AIM: GCM), formerly Asia Energy and Global Coal Management, is a mining company quoted in the London Alternative Investment Market. Its major asset and goal is to exploit open cast coal mining opportunities in the Phulbari region of Dinajpur District, Bangladesh.

Hedge Fund Standards Board

The Standards Board for Alternative Investments (SBAI), formerly known as the Hedge Fund Standards Board, is an international standard-setting body for the alternative investment industry and sets the voluntary standard of best practices and practices endorsed by its members. Its primary role is to be the custodian of the Alternative Investment Standards (formerly known as "the Standards"), which are designed to create a "framework of transparency, integrity and good governance" in the way the hedge fund industry operates.

Imperial Innovations

Imperial Innovations is a UK technology commercialisation and investment company, based in London. Imperial Innovations is traded on the Alternative Investment Market of the London Stock Exchange.

Invesco

Invesco Ltd. is an American independent investment management company that is headquartered in Atlanta, Georgia, United States, and has branch offices in 20 countries. Its common stock is a constituent of the S&P 500 and trades on the New York stock exchange. Invesco operates under the Invesco, Trimark, Invesco Perpetual, WL Ross & Co and Powershares brand names.

Northern Racing

Northern Racing was a private company that owned ten horse racing courses and one golf course in the United Kingdom. It was formed in 1998 by Sir Stanley Clarke CBE, and after being listed on the Alternative Investment Market, was owned privately by the Reuben Brothers. In 2012, it was merged with Arena Leisure to form Arena Racing Company

Private equity firm

A private equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital. Often described as a financial sponsor, each firm will raise funds that will be invested in accordance with one or more specific investment strategies.

Typically, a private equity firm will raise pools of capital, or private equity funds that supply the equity contributions for these transactions. Private equity firms will receive a periodic management fee as well as a share in the profits earned (carried interest) from each private equity fund managed.

Private equity firms, with their investors, will acquire a controlling or substantial minority position in a company and then look to maximize the value of that investment. Private equity firms generally receive a return on their investments through one of the following avenues:

an initial public offering (IPO) — shares of the company are offered to the public, typically providing a partial immediate realization to the financial sponsor as well as a public market into which it can later sell additional shares;

a merger or acquisition — the company is sold for either cash or shares in another company;

a recapitalization — cash is distributed to the shareholders (in this case the financial sponsor) and its private equity funds either from cash flow generated by the company or through raising debt or other securities to fund the distribution.Private equity firms characteristically make longer-hold investments in target industry sectors or specific investment areas where they have expertise. Private equity firms and investment funds should not be confused with hedge fund firms which typically make shorter-term investments in securities and other more liquid assets within an industry sector but with less direct influence or control over the operations of a specific company. Where private equity firms take on operational roles to manage risks and achieve growth through long term investments, hedge funds more frequently act as short-term traders of securities betting on both the up and down sides of a business or of an industry sector's financial health.

Purplebricks

Purplebricks is an online estate agent which operates in the UK, Canada, US and Australia. Founded in 2012 by Michael Bruce and Kenny Bruce, it is backed by investors that include venture capital firm DN Capital as well as Neil Woodford, Paul Pindar, and Errol Damelin.In December 2015, The Guardian reported that Purplebricks was set for flotation, and would début on London's Alternative Investment Market (AIM) on 17 December, with an anticipated valuation of £240 million.In December 2016, it was reported that Purplebricks had made its first ever profit, a modest £300,000, in the six months to end October 2016. In the U.K., profit has risen to £5.7 million in the first half of the 2019 financial reporting period.Purplebricks has expanded internationally. In August 2016 it launched in Australia, and in September 2017, Purplebricks was officially launched in the US.In 2018, the company purchased DuProprio, a Canadian real estate company that offers commission-free real estate services, for $51 million.

Qualifying investor alternative investment fund (QIAIF)

Qualifying Investor Alternative Investment Fund or QIAIF is a Central Bank of Ireland regulatory classification established in 2013 for Ireland's five tax-free legal structures for holding assets. The Irish Collective Asset-management Vehicle or ICAV is the most popular of the five Irish QIAIF structures, and was designed in 2014 to rival the Cayman Island SPC; it is the main tax-free structure for foreign investors holding Irish assets.

In 2018, the Central Bank of Ireland expanded the Loan Originating QIAIF or L–QIAIF regime which enables the five tax-free structures to be used for closed-end debt instruments. The L–QIAIF is Ireland's main Debt–based BEPS tool as it overcomes the lack of confidentiality and tax secrecy of the Section 110 SPV. It is asserted that many assets in QIAIFs and LQIAIFs are Irish assets being shielded from Irish taxation. Irish QIAIFs and LQIAIFs can be integrated with Irish corporate base erosion and profit shifting ("BEPS") tax tools to create confidential routes out of the Irish tax system to Ireland's main Sink OFC, Luxembourg.In March 2019, the UN identified Ireland's "preferential tax regimes" for foreign funds on Irish assets as affecting the human rights of tenants in Ireland.

Safestyle UK

Safestyle UK is part of the Style Group UK and is a provider of PVCu double glazed windows, doors, French doors, patio sliding doors and conservatories in the United Kingdom.

Special situation

A special situation in finance is an atypical event which has the potential to alter the future course of a business, materially impacting the company's value. The notion covers corporate restructuring and corporate transactions such as spin-offs, share repurchases, security issuance/repurchase, asset sales, or other catalyst-oriented situations. A conflict of shareholders is also considered a special situation.

To take advantage of special situations, a hedge fund manager must identify an upcoming event that will increase or decrease the value of the company's equity and equity-related instruments.

Team17

Team17 Group plc is a British video game developer and publisher based in Wakefield, England. The venture was created in December 1990 through the merger of British publisher 17-Bit Software and Swedish developer Team 7. At the time, the two companies consisted of and were led by Michael Robinson, Martyn Brown and Debbie Bestwick, and Andreas Tadic, Rico Holmes and Peter Tuleby, respectively. Bestwick later became and presently serves as Team17's chief executive officer. After their first game, Full Contact (1991) for Amiga, the studio followed up with multiple number-one releases on that platform, and saw major success with Andy Davidson's Worms in 1995, the resulting franchise of which still remains as the company's primary development output, having developed over 20 entries in it.

Through a management buyout performed by Bestwick, both Robinson and Brown departed from Team17 in 2010, leaving Bestwick as the sole manager. In 2013, Team17 initiated a publishing venture focusing on indie games, which since occupies its own office in Nottingham. The first game to release of this venture was Light (2013). Following a large investment from Lloyds Development Capital in September 2016, Team17 sought corporate expansion through various actions, including the acquisition of Mouldy Toof Studios, the developer behind Team17-published The Escapists (2015), and the hiring of multiple new key staff. In May 2018, the company published their initial public offering and became a public company listed on the Alternative Investment Market, valued around GB£230 million. Team17 employs 140 people in its two offices.

Telford Homes

Telford Homes is a house-building company listed on the Alternative Investment Market that specialises in developments in non-prime areas of London.In April 2018 it was reported that Telford Homes was expecting record profits and revenues for the financial year 2017/18 as a result of London’s shortage of housing.

Tinopolis

The Tinopolis Group is an international TV production and distribution group with businesses based in the UK and US and a portfolio spanning 13 content production companies across all genres – from big scale entertainment and award-winning factual to critically acclaimed drama and ground-breaking live sports coverage. The group also includes international distributor, Passion Distribution.

Tinopolis produces over 4,500 hours of television annually for more than 200 UK and foreign broadcasters.

Vertu Motors

Vertu Motors PLC is a car dealership group based in the United Kingdom, which was established in 2006. It is listed on the Alternative Investment Market. The company started trading by acquiring Bristol Street Motors in March 2007, a Birmingham based dealer that started in the beginning of the 1900s, for GB£31m cash, £9m of shares, and assumed debt of £29m.

The company sells a variety of car marques under the Vertu, Bristol Street Motors, Farnell and Macklin Motors name, a company acquired by Vertu in Scotland in July 2010. The company's largest acquisition since its establishment with Bristol Street Motors was GB£31m, to purchase the Yorkshire based dealerships Farnell Land Rover in May 2013.The company also provides vehicle leasing for personal and business use under the brand Vertu Lease Cars.

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