Over a third of the investment trust company sector is invested in alternative assets suggests research from the association of investment companies (AIC). The term ‘alternative’ is used to cover many other types of investments that are not traded on stock markets. These might include the shares in private companies, physical property or infrastructure projects. Due to the nature of many of these ‘alternative’ investments, they will only be suitable for a very limited number of investors. Professional advice should be taken by any investors considering such ‘alternatives’.
The investment company sector has always been innovative – the first collective investment vehicles in the late 1800s were, after all, closed-ended funds. Many of the early launches were investing in the American railway boom; they were, perhaps, the original infrastructure funds – the alternative assets funds of their day.
According to the AIC, over a third (39%) of the investment company sector by assets now invests solely in alternative assets, and over 80% of this is in investment companies that have been launched over the last decade. Alternative assets are a broad church, and there’s a diverse choice for investors – not least from an income perspective.
The investment trust structure can be an appropriate way of accessing alternative assets because managers can take a long-term view without having to worry about inflows and outflows, but there’s a lot to consider.
Much of the growth story in the alternative assets sector over the last decade has been fuelled by investor appetite for yield. There are many types of alternative asset classes including property, private equity, hedge funds and specialist debt.
There are many types of alternative asset classes. Here are just some of the most popular:
There are a wide range of investment trust companies investing in property. Some specialise in investing in commercial property, others in residential. Some specialise in particular types of property (such as clinics providing for healthcare). Some invest primarily in the UK, others in Europe or even further afield. Property investment companies might own the property directly or, alternatively, invest in the shares of property companies.
Private equity means investing in the shares of private companies as opposed to companies whose shares are traded on stock markets. Private equity often involves investing in companies with the aim of helping them grow and eventually selling them for a profit. These companies can be riskier in the short term but can deliver strong returns over the long term.
A hedge fund is a fund that employs a wide range of sophisticated investment techniques, including derivatives, often with the aim of producing positive returns in all markets. In a ‘feeder-fund’, the investment company invests in a single hedge fund run by the same manager. In a ‘fund of funds’, the investment company invests in a range of different hedge funds run by different managers.
Infrastructure investment companies invest in contracts to develop and run long-term capital expenditure projects in public sectors such as transport, healthcare and schools. These contracts are for the long term (20–50 years) and aim to deliver a stable income over the period of the contract, often linked to inflation.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
AS WITH ALL INVESTMENT COMPANIES, INVESTMENT COMPANIES INVESTING IN ALTERNATIVE ASSETS COME WITH RISKS TO YOUR INCOME AND CAPITAL. YOU SHOULD ALWAYS MAKE SURE THAT YOU ARE HAPPY WITH THE AMOUNT OF RISK YOU ARE TAKING BEFORE YOU INVEST.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.