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Diversification Beyond the Mainstream

December 14, 2023

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Alternative investments have become a key focus for accredited investors looking for diversification beyond traditional markets. Alternative asset investments, which include commodities, private equity, Merchant Cash Advances (MCAs), and venture capital can offer unique opportunities for both risk management and potential growth.

Understanding how to best leverage the opportunities provided by alternative assets can make or break a portfolio. Trusted platforms that provide simplified and high-security access to the kind of alternative assets you are interested in will play a pivotal role in your investment successes.

In this article, you will learn:

  • Insights into the diverse landscape of alternative investments.
  • The nuanced role of MCAs within a broader investment strategy.
  • How Supervest is transforming the way accredited investors engage with alternative investments.

The landscape of alternative asset investing is rich with opportunities that challenge traditional investment norms and offer new ways to achieve financial goals. We hope that this exploration of alternative investments opens doors to understanding how they can complement traditional assets, offering a broader perspective for family offices and accredited investors looking to deepen and their portfolios through diversification.

The Changing Dynamics of Alternative Investments

The landscape of alternative investments has been undergoing significant transformation in recent years. This shift is characterized not just by the types of investments coming to the fore but also by the changing profile of investors and the impact of global economic trends.

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Understanding how to best leverage the opportunities provided by alternative assets can make or break a portfolio. Photo by Getty Images.

Surge in Alternative Assets

One of the most notable shifts has been the increasing inflow of capital into alternative assets. According to data from Preqin, the global alternative assets industry is projected to grow to $17.16 trillion by 2025, up from $10.74 trillion in 2020.

This represents an expected increase of 60% between the end of 2020 and the end of 2025, with a compound annual growth rate (CAGR) of 9.8%

This growth reflects a broader trend of diversification, with investors increasingly turning to alternatives as a way to hedge against market volatility and achieve higher returns compared to traditional markets.

Globally, there is a significant push towards alternative assets, with 81% of investors polled by Preqin expressing a rising allocation to private markets as the industry grows

Democratization of Investment Opportunities

This surge in interest is not limited to institutional investors. The democratization of alternative investments has been a key trend, with technology playing a significant role. Online platforms have opened doors for individual accredited investors to participate in opportunities once reserved for institutional players.

Investments in private equity, hedge funds, real estate, commodities, and even more niche markets like art, wine, and rare collectibles have seen increased participation from a wider investor base.

Our own minimum investment amount sits at $25,000, considerably lower than historical investment minimums in alternative assets reaching into the millions.

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Accredited investors are uniquely qualified to benefit from alternative assets. Photo by Planet Volumes.

Impact of Global Economic Trends

Another driving force in the alternative assets market is the impact of global economic changes. Data from Forbes shows that the low-interest-rate environment, coupled with periods of high market volatility, has pushed investors to seek returns in alternatives.

In addition, the inflationary environment and interest rate hikes have further encouraged investors to explore alternative investment assets like real estate, hedge funds, collectibles, and MCAs to mitigate the risk associated with the traditional stock market.

Alternative asset investments often provide a buffer during economic downturns due to their low correlation with traditional markets. For instance, real estate, MCAs, and infrastructure investments have shown resilience during economic downturns, often outperforming more traditional assets.

Shift Towards Responsible Investing

The shift in investor behavior towards responsible investing is a significant trend in the alternatives space. There’s an increasing focus on ESG (Environmental, Social, and Governance) investing, where investors aim to achieve not only financial returns but also make positive environmental and social impacts. This trend is clearly visible in the rising interest in green energy projects, sustainable real estate developments, and social impact funds.

MCAs Supporting SMEs and Local Business Growth

We have noted an aspect of this shift ourselves in the inclusion of Merchant Cash Advances (MCAs) in the portfolios of many family offices and Registered Investment Advisors (RIAs). These investors recognize the unique role MCAs play in supporting the growth and expansion of local businesses, particularly small and medium-sized enterprises (SMEs).

By providing these businesses with much-needed capital, MCAs directly contribute to their development and success, aligning with the social governance aspect of many Family Office’s ESG goals.

Investing in MCAs offers a dual benefit. Not only does it help in diversifying an investment portfolio, but it also enables investors to have a direct impact on the economic health of local communities.

These investments are seen as a way to foster sustainable economic growth by supporting businesses that are often overlooked by traditional financing sources. This approach aligns with the broader trend of responsible investing, where the emphasis is on generating positive social outcomes alongside financial returns.

The addition of MCAs to investment portfolios reflects a broader, more conscientious approach to investing. By focusing on opportunities that support local businesses, investors are contributing to the vibrancy and resilience of communities, a key aspect of social responsibility in the world of finance.

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MCA investment aligns with ESG goals as they directly support SMEs. Photo by Allison Saeng.

Navigating Challenges

However, this changing dynamic is not without its challenges. Some alternative asset investments can be complex, less liquid, and often require longer holding periods. Venture capital, for instance, is notorious for being more complicated and volatile. This necessitates a more nuanced understanding and a strategic approach to portfolio construction.

In summary, the alternative investment market is experiencing rapid growth and diversification, influenced by global economic trends, technological advancements, and evolving investor preferences. This environment presents both opportunities and challenges, requiring a sophisticated understanding of the risks and rewards involved.

Sophisticated Strategies in Alternative Investments for Accredited Investors

Accredited investors have access to a range of sophisticated investment strategies, many of which offer unique opportunities and risk profiles distinct from traditional assets. Among these, alternative investments stand out for their potential to diversify portfolios and manage risk effectively.

Diversification through MCAs

MCAs offer a unique proposition by providing short-term financing to businesses. When an investor chooses to invest in MCA notes with Supervest, they are not just investing in a single deal but are diversifying across hundreds of individual agreements spanning various geographical regions, industries, and business sizes. This inherent diversification maximizes the risk-spreading potential of MCAs.

Risk Management: The 5% Exposure Cap

One notable risk management technique employed by Supervest is the 5% exposure cap on any single MCA deal. This means that an investor’s exposure to any single business is limited to a maximum of 5% of their total investment in the platform. 

This cap significantly reduces the risk of substantial losses from any single underperforming MCA, thus providing a safety net against individual business volatility.

Statistical Backing of Diversification Benefits

The effectiveness of this approach is backed by statistical data. Diversification, as a strategy, has long been acknowledged for its risk-reducing benefits in investment portfolios. According to modern portfolio theory, diversifying investments across a wide range of assets can significantly lower the risk without proportionately reducing the expected returns.

Supervest’s model of spreading investments across numerous MCAs epitomizes this principle. By ensuring that no more than 5% of an investor’s funds are tied to a single MCA, Supervest mitigates the idiosyncratic risks associated with individual businesses.

Emerging Investment Opportunities with Supervest

Supervest specializes in Merchant Cash Advances (MCA), a form of investment that is gaining traction among investors looking for alternatives to traditional market options.

MCAs provide funding to businesses in exchange for a percentage of their future sales. This model offers an attractive proposition for investors seeking regular income streams and has a lower correlation with traditional market fluctuations, making it a valuable addition to a diversified portfolio.

A Unique Approach to Investment

What sets Supervest apart in this sector is its strategic approach to investment selection and risk management. By using advanced analytics and a rigorous vetting process, Supervest ensures that only high-quality MCA opportunities are presented to investors. This methodical approach is designed to maximize returns while managing the inherent risks associated with these types of investments.

Impressive Track Record: Q3 Results

Supervest’s performance has been particularly noteworthy. In the third quarter, we were very pleased to report that we delivered 100% of target returns to our investors.

This success rate is a testament to the effectiveness of our expert investment strategy and risk management protocols. It underscores the potential of MCAs as a viable and profitable alternative investment option, especially in a well-managed and carefully curated environment like that provided by Supervest.

Data-Driven Decision Making

Supervest’s success is largely attributed to its data-driven approach. By continually and meticulously analyzing market trends, business performance metrics, and historical data, the platform is able to make informed decisions about where to allocate investor funds.

This approach minimizes the guesswork and emotion often associated with investing, leading to more consistent and reliable outcomes.

Overview of Performance in Other Alternative Asset Investments

The landscape of alternative investments has seen considerable shifts, particularly in areas like real estate, commodities, and private equity. These shifts reflect changing market dynamics and investor behavior, significantly impacting returns and investment strategies.

Real Estate Investment Returns

The real estate market, a staple in alternative investments, has experienced a downturn in recent times. According to data from the National Council of Real Estate Investment Fiduciaries (NCREIF) Index, total annual returns fell by 8.3% in the year ending 3Q23, primarily due to a -12.1% return in capital values over the trailing year​.

This downturn aligns with broader market trends, where investment volume in U.S. real estate is forecast to fall by 37% year-over-year in 2023, with a projected rise of 15% in 2024​.

Commodities as a Strong Performer

In contrast to real estate, commodities have emerged as a strong performer. Analysts at Goldman Sachs project that commodities could be the best-performing asset class in 2023. This prediction is underpinned by factors such as underinvestment in new capacity, global growth rebound, China’s reopening, and a slowdown in Federal Reserve rate hikes. Notably, the S&P GSCI Total Return index, a measure of commodity returns, showed significant gains of +42% in 2021 and +23% in 2022.

Private Equity Market Trends

Private equity, another key component of alternative investments, managed to post its second-best year ever in 2022, riding off a wave of momentum from 2021. However, spiking interest rates led to a sharp decline in dealmaking, exits, and fundraising activities during the second half of the year, signaling a potential turn in the cycle​.

Some experts, however, argue that private equity’s diversification power is overstated: A study by McKinsey noted that over the past 15 years, the average correlation between the European and US buyout markets and public equity has been roughly 80%.

Strategic Implications for Accredited Investors

For accredited investors, these trends highlight as ever, the importance of a diversified investment strategy that navigates through different asset classes. The current landscape underscores the need for a balanced approach that mitigates risks associated with market volatilities while capitalizing on high-performing sectors.

This approach requires a sophisticated understanding of market dynamics, rigorous risk assessment, and staying informed about global economic changes that could impact various alternative investment avenues.

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Diversification is a timeless strategy for well-constructed portfolios. Photo by Getty Images.

Conclusion: The Future of Alternative Investments for the Accredited Investor

This article has provided a comprehensive overview of the diverse landscape of alternative investments, exploring various sectors like real estate, commodities, and private equity, and illustrating their evolving dynamics.

It has also explored into the role of Merchant Cash Advances (MCAs) within a broader investment strategy, emphasizing their diversification benefits and unique risk-return profile.

Finally, the discussion highlighted how platforms like Supervest are revolutionizing the approach accredited investors take toward alternative investments, particularly through the integration of innovative investment models like MCAs.

The Future of Alternative Assets

As the investment landscape continues to evolve, the future of alternative investments for accredited investors and family offices is marked by both exciting opportunities and the need for strategic adaptability. The recent shifts in markets such as real estate, commodities, and private equity reveal a complex but potentially rewarding terrain.

Accredited investors looking to diversify into alternative investments should consider embracing a multifaceted approach. This involves staying updated with market trends, leveraging platforms offering diverse investment opportunities, and applying sophisticated risk management strategies.

Overall, it’s advisable to balance the portfolio with a mix of traditional and alternative assets, optimizing both risk and growth potential.

Choose Trusted Partners

The key is to navigate these alternatives with strategic insight and informed decision-making. Platforms like Supervest, with a proven track record, underscore the importance of selecting reputable companies that offer products that align with personal risk tolerance and financial objectives.

Looking ahead, the alternative investment sector seems poised to continue its growth trajectory, driven by technological advancements, economic shifts, and changing investor preferences.

Accredited investors who actively engage with these developments and adopt a proactive approach to portfolio diversification are likely to find themselves at an advantage in this evolving landscape. They should seek to build a resilient and versatile portfolio that captures the full spectrum of opportunities presented by the range of assets available in the market today.

In conclusion, the future of alternative investments is bright but demands a keen understanding of market dynamics and a commitment to continuous learning and adaptation. For accredited investors, the journey into these diverse investment territories offers not only potential financial returns but also the satisfaction of being at the forefront of financial evolution.

Elevate your investment strategy with Supervest. Discover the power of MCAs in your portfolio. Register on our platform to get started.

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