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Author: Admin | 2025-04-27
Alternative investments in Australia cover a unique and diverse range of investment opportunities, including private credit, private debt, real estate, infrastructure, liquid alternatives, and managed funds. For investors, alternative investments exist to help enhance returns, increase portfolio diversification and provide a level of downside protection. A full run down on the benefits of alternative investments in a diversified portfolio can be seen here.Misconceptions about alternative investments in AustraliaWith tighter monetary policies impacting traditional asset classes and reducing returns, many investors are now considering adding alternative investments to their portfolios. Despite an increase in interest, investors can often be put off by reading bad press, that at times, gives alternative investments a somewhat ‘shaky’ image. As with any investment it is wise to consider and evaluate any misconceptions prior to making a final decision. It is also important to remember that all investment types include both risk and reward.Some of the common misconceptions about alternative investmentsThey are new types of asset classesA common miss truth is that all alternative assets and investment vehicles are new. Whilst it is true that some classes of alternative assets are new (e.g., cryptocurrency), many alternative investments have existed since the 1940’s with the introduction of hedge funds.Alternative investments are riskyWhilst it is true that alternative investments in Australia have unique characteristics and can be risky depending on the asset class and investment strategy, they also are very useful to mitigate risk and reduce volatility when incorporated into a diversified portfolio.Alternative assets often utilise unique strategies and exposures such as leverage, shorting and derivates. By nature, these non-traditional investment options and strategies can be more complex and involve higher risk, but in fact, are designed to provide better risk-adjusted performance than many traditional investments. The theory of allocation with alternatives is that they are uncorrelated with mainstream asset classes such as shares and bonds. What does that mean for investors? When these two asset classes (share and bonds) are underperforming, alternative investments will keep an investment portfolio on track and deliver returns through downturns. They can also be defensive and help to preserve capital in addition to giving a new avenue of growth.Alternative investments are illiquidOne common misconception and trap investors fall into is thinking that all alternative investments are illiquid. The level of illiquidity is dependent on the alternative asset class and the underlying investment strategy. Yes, some classes of alternative assets by nature are
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