Feeding the Hungry Investor: Alternatives Top menu of investment opportunities
Alternative Investments Defined
Alternative investments cut a broadband in a number of non-public categories, such as private equity funds, hedge funds, venture capital funds, commodity funds and so on. Typically open only to qualified investors must have a minimum of $ 1,000,000 in net financial assets in recent years has earned a higher return than alternative public equity markets. This type of result has understandably raised alternative "profile asattractive investment opportunities.
It is not surprising that large institutional investors and wealthy individuals have increased their allocations to alternative investments. And for the most part, have not been disappointed. The test of public investment funds has passed from alternatives, particularly in the category of private equity which is awesome. According to the Greenwich-Van U.S. Hedge Fund Index and Cambridge Associates Private Equity Index 3 yearsAgain there was U.S. private equity fund of 25%, higher than nest Dow Jones Commodity Index, with a little 'less than 15%.
Stealing shipment Driving Desires
Supported by evidence of a strong overall return in the investment community, once considered alternative with a good degree of skepticism in the past decade in favor of alternatives have become a lucrative investment option. According to the World Wealth Report 1997 - 2006, high net worthInvestors have more than doubled their allocations to alternatives in the last five years, which has further fueled the popularity of these investments, resulting in the average private investor with a loud voice their chances of getting a seat at the table.
What more? Institutional investors have also seen equally dramatic results. At Cambridge Consultants, the investment advisor that leads to the foundations, have increased their allocations to alternative investments by customers onlyfive percent in 1991 to 25 percent in 2005. The significant increase was driven by the performance of return. As foundations have discovered a boost in total return, which has confidence in the choice of alternatives such as a piece of their possible increased investment mix.
Indeed in June 2006, the media has reported that more foundations as a result of increased funding foundations, in particular, "... performance is that were earned more than 50 percent higher than those of smallFoundations ... "Moreover, were monitored from 130 bases that earned the highest returns - Yale, Amherst, Harvard and the University of Michigan - was that over 40 percent of their assets in alternative investments.
To overcome the obstacles
Sitting on the bench is not an enviable position for individual investors, foundations must see the profile, like their brothers and sisters, and high net-worth of back lip smacking pleasure to offer alternatives.However, the limits are clear: The SEC prohibits people who do not qualify as non-accredited investors in private investment opportunities.
Even people classified as qualified investors, this is still a few
daunting obstacles:
or minimum investment amounts. Minimum amounts established fund managed worldwide $ 5,000,000 to $ 25,000,000 or more. This substantial investment is usually too large for many high net worthInvestors.
or long-term tie-ups and lack of liquidity. E 'common for private equity funds and venture capital have exposure times of up to five to 10 years. As individual investors often prefer to access their funds - for example, a house to buy or pay for a college education - they are usually reluctant to hold the capital for such long periods.
Fortunately, there is good news horizon. For the obstacles and constraints that faceboth accredited and non-accredited private investors, fund companies have begun to improve accessibility to public funds for a number of potential investors to accept the population.
New strategies, new options
Prime among the basic strategies of emerging markets managers are at the forefront for new public facilities, conditions change fund to improve accessibility to potential investors.
The most common strategy to date, is to obtain a public listing onCreation of a business development company (BDC). In 1980, the U.S. Congress created the BDC structure to promote the flow of public capital to private companies. Of course, for the governance and oversight of ethics must follow special rules BDC, in the course of more than 90 percent of their income from investment earnings and credit, and then the annual distribution of at least the same percentage of income for shareholders.
With the adoption of structural public BDC may sell their sharesthe general public. Just like buying shares in GE or IBM, there is little or no net value of the period of tie-up for investors. A test of the effectiveness of the BDC model over the past decade can only be attested to the success of several mezzanine debt and BDC, including American Capital, Allied Capital and Gladstone Capital. Through better access to retail investors - and, in turn, strengthen the confidence of investors - organizations were significantlyGrowth, reporting, market capitalization of several billion dollars.
While the strategy has its supporters - and has proven successful in the arena of public property - the BDC model also has its disadvantages in the side of private equity. In April 2004, based on a base of 900 million U.S. dollars, Apollo Investment, the first U.S. private equity has become a BDC list. The move has triggered a number of other private equity funds in BCD form obtained from the SEC. The increase in interest rateshowever, quickly subsided, and the lack of investor demand, not to go ahead. In response to the disturbances first BDC Private Equity, Edwin Pease, a partner at Boston law firm Brown Rudnick, said: "They were not on sale because the original investors in the offer, they shoulder the cost of subscription was the taste. Month and did not catch on. "(The New York Times, May 4, 2006).
Undaunted, the companies continue their efforts to help individual investors meansto enter the game in high yield.
Consider the approach he has taken Kohlberg Kravis & Co. (KKR), with its private equity funds. Instead of forming a BDC, has taken the public funds in May 2006 (contained three times the initial offer) to collect $ 5,000,000,000 to Euronext Amsterdam. Mark O'Hare, managing director of London-based market research firm Private Equity Intelligence, summed up the advantage to the individual investor, "[above] if you want [ed] in KKR, you will receive[Had] to obtain 25 million U.S. dollars, and [is] stuck in 10 years. But [now], one of the listed [KKR] vehicles arrive, you can buy shares tomorrow. It opens to private equity to a whole new group of investors. "(The New York Times, May 4, 2006)
A third option more attractive to private equity to individual investors is the model of the structure in perpetuity. Instead of marrying the creation of a public fund, fund companies, the high returns of private equity investments with more flexible conditions for aopen-end funds after periods much shorter tie-up (1-4 years versus five to 10 years for a closed fund), investors may have to liquidate their assets through the sale of its interest at the lower back. This option is gaining strength and visibility in the investment community. For example, Ospraie Management recently making a $ 750,000,000 hybrid funds, private equity investments with an open-ended structure, and many others prefer - with investorsresponded very positively.
A Place at the Table
Apparently, individual investors are also interested to earn higher returns than institutional investors and high net worth. In fact, as the pool of potential investors in depth, it is necessary that the fund management companies are seeking new ways to engage people at different levels.
The trend toward democratization is a welcome investment for private investors. The recent moves to create public structures,Allow investment in private companies have already demonstrated their success - and the push for innovation, even more in the funds market. In fact, it can not be long before we define to be a new twist to the phenomenon that describe investment opportunities - extended. "Public-private-equity", perhaps more appropriately in order to be the best known are While seemingly in contradiction with the surface, is the appetizer that will feed hungry investors, which gives the possibility toto take their place at the table of high returns.
