Alternative Investments For Accredited Investors

In the recent webinar that I conducted with my teammates, I shared that in order for us to have a better life in future, we all need to make better decisions with how we grow our money that will lead to our desired outcome. And in order for us to make better decisions, we must first have various options for us to choose from. Otherwise, without options to choose, there is only one decision to make – and that is, just work hard in your only job, grow old, and hope that it will lead to your better life in future because you have no other choice. In today’s 138th week of our #SundayTimesRecap series, let us explore the various alternative investment options based on this article published in yesterday’s Sunday Times Invest section, “Alternative investments for accredited investors”, for you to make decisions on how you allocate your capital. To qualify as an accredited investor, you need to have financial assets exceeding $1 million, or have an annual income of more than $300,000. Even if you are not an accredited investor, you can still seek to understand what is available and use the information to grow your financial knowledge which in turn, will help you on your investing journey as well:

1. Private credit fund. The fund provides secured or unsecured loans to private companies or real estate, and in return generates income via the interest payments. It can offer a monthly income, which works out to a 6% to 8% net return per year. Returns tend to be higher than those offered by bonds because private credit funds can charge a higher interest rate on loans to private companies. The minimum investment is usually US$100,000, but some funds are open to retail investors and can accept very low minimum sums, even US$5,000. Redemption can be done quarterly, and the investment usually comes with a minimum one-year commitment. The risk is the lack of liquidity - since it can take up to six months to get your principal back due to 90-day notice periods and quarterly redemptions. The fund may also be unable to achieve the target returns if a significant number of its portfolio investments suffer losses.

2. Real estate fund. These funds invest in residential or commercial properties, and the minimum investment is usually US$100,000. With these funds, the investor benefits from efficiencies in pricing, leverage and operational improvements. In terms of returns, these funds try to target a 15% average annualised return over the life of the fund – typically 7 to 10 years. Some funds also provide an annual 6% to 8% income from the rental income they collect. Risks include a lack of liquidity – since the investment is locked up until the end of the fund life, which can be up to 10 years – and a potential downturn in the real estate sector.

3. Hedge fund. This is a pooled investment fund that trades in relatively liquid assets, such as stocks or commodities. Using complex trading, portfolio construction and techniques such as leverage, short-selling and derivatives, it is able to achieve better returns. The minimum investment is usually US$1 million and can be more than US$10 million for larger, more established hedge funds. Redemption can be quarterly, and the investment usually comes with a minimum one-year commitment. Most funds target an average annual return of 10% to 15%, depending on their risk appetite. Lack of liquidity is a risk – it can take up to six months to get your principal back because of 90-day notice periods and quarterly redemptions. Also, the fund may not achieve target returns as they pursue higher-risk strategies that make them vulnerable to higher losses.

4. Investing options via the Addx platform. This platform has some 60 products across various asset classes, including venture capital, private equity and hedge funds. It is also working on increasing the offerings within each asset class. Some investments on the Addx platform that have attracted investor capital include hedge funds and commercial paper, which pay a fixed interest rate.

- Commercial paper: This is an unsecured form of debt which reflect the risk that investors take, and therefore, the rates may be slightly higher than banks’ fixed deposit rates/ The risk is somewhat mitigated by the short tenor of the papers. For example, pawnbroker MoneyMax offers investors a return of 5.4% per annum on its three-month commercial paper with a minimum investment of $20,000.

- Wine: If you wish to combine pleasure with investing returns, then the Addx platform offers an opportunity to invest in a portfolio of French wines. These are sourced from wineries in France’s Burgundy region, including Domaine Coche-Dury and Domaine Leroy. About half of the bottles carry “Grand Cru” appellations, the highest tier of wine classification in Burgundy.The wines are 2006 to 2020 vintage. The initial portfolio comprised 359 bottles with an indicative worth of about $1.1 million. The portfolio is managed by Provenance Treasures, a wholesale wine and alcohol trading company that is a subsidiary of mainboard-listed company Intraco. Provenance Treasures makes wine-trading decisions in consultation with wine distributor Domaine Wines, which is also a shareholder of Provenance. The bottles are stored in a professional, secured wine storage facility in Singapore and insured.

5. Private assets: One of the funds that invests in private equity and private debt is the Hamilton Lane Global Private Assets Fund. This is the first time Hamilton Lane – one of the world’s largest investors – has tokenised a fund. The minimum investment is US$10,000 on Addx, compared with US$125,000 or more via traditional channels. Returns for 2022 were at 8.33%. Since inception, the returns have been an annualised 15.01%.

6. Gold: For the retail investor, gold is always an alternative investment option. The two liquid options for gold are SPDR Gold Shares (or GLD), which invest in physical gold, and VanEck gold miners ETF (or GDX), which invest in gold mining companies. With interest rates being high, placing money in gold means an opportunity cost of forgoing interest income from investments such as fixed deposits. However, gold can still act as a hedge against extreme conditions. In a global deflationary or economic shock, interest rates will likely fall sharply, supporting gold prices. At the other extreme of runaway inflation and excess money supply, gold is an attractive asset class due to its limited supply. However, gold has lost its lustre with millennials that have a preference for crypto currency.

The bottom line is, no matter which investment to focus on, investors need to be mindful in managing their portfolios across different economic regimes. They also need to be mindful of differences in financial reporting of more sophisticated assets. Alternative investments can be attractive but any investor venturing into them needs to be mindful of the risks, from their long-term nature to their illiquid nature. The value of investments and the income from them can go down as well as up, and they may not get back the full amount invested. If in doubt, let’s have a discussion to plan how to set up your portfolio.

At the same time, to help you on the investing journey, join me and my teammates in our next webinar - “The Lifetime Income Streams” on Monday 13th Mar 2023 at 8pm, where we will share low-risk strategies that you can take action on to generate monthly lifetime income for your better future. It is less complex than alternative investments. If you are excited to learn, register for a seat – select “Invited by Victor” here: https://www.thelifetimeincomestreams.com/tlisvip

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