Alternative investments typically refer to those that fall outside traditional asset classes commonly accessed by most investors, such as stocks, bonds, or cash investments. These are divided into seven distinct asset classes (definition by Preqin).
1. Private Equity:
- Capital invested in private companies in exchange for equity or ownership stakes.
- Investment in existing private companies that are not publicly traded or listed, or may involve the acquisition of public companies by a private investment fund or investor.
2. Venture Capital:
- Capital invested in start-ups with high growth potential.
3. Hedge Funds:
- A largely unregulated investment structure that can invest across a wide range of asset classes and instruments.
- Includes land, real estate, stocks, derivatives, and currencies.
- The term 'hedge fund' comes from the strategy of ‘hedging’ against market movements to reduce risk and maximize returns.
4. Private Debt:
- Investment in corporate entities in the form of debt as opposed to equity.
- Typically applied to debt investments that are not financed by banks, nor traded or issued in an open market.
5. Real Estate:
- Acquisition, financing, and ownership of real estate assets by private investment vehicles, funds, or firms.
- Covers three main property types – residential, commercial, and industrial – in both primary and secondary markets.
6. Infrastructure:
- Investment in services and facilities considered essential in the economic development of a society.
- Includes energy, logistics, telecoms, transportation, utilities, and waste management.
7. Natural Resources:
- Investment in the development, enhancement, or production of various types of natural resources.
- Includes agriculture, renewable energy, timberland, water, and metals.