Alternative Investments

An alternative investment is an investment in asset classes other than stocks, bonds, and cash. The term includes financial assets such as real estate, commodities, private equity, life settlements, energy, distressed securities, hedge funds and venture capital. Despite unique risks and considerations, alternative investments can be useful tools to improve the risk-return characteristics of an investment portfolio. They can increase diversification and reduce volatility, given low correlations to more traditional investments; they can offer the potential for enhanced returns due to the wider investment opportunity set; and they can hedge certain portfolio exposures, thereby reducing concentration risk.

Given the potential benefits of alternative investments we find it interesting that the typical individual investor has little to no exposure to alternatives. Whereas large institutions have a significant portion of their portfolios allocated to alternatives. One reason for this may be that while many investors will acknowledge that they are worried about losing money due to market volatility they are still unwilling to consider alternative investments even though their portfolios might benefit from their inclusion.

The question then becomes why are investors unwilling to include alternatives in their portfolios. Is it because they do not fully understand the benefits, risks, costs and liquidity of the opportunities? While the answer is different for every investor, the principals of Irvine Advisors can help you determine if alternative investments are right for you.

REAL ESTATE

This includes real estate funds, property portfolios, and individual properties. Real estate funds typically focus on one or more property types such as multi-family, student housing, retail, office, healthcare, assisted living, self storage, industrial, and parking facilities. Fund strategies may include acquiring existing properties, ground-up development, and value-added whereby the goal is to increase rents/occupancy and ultimately value by repositioning the property. If your preference is to invest directly into one or more single properties or if you are looking to defer capital gains through a 1031 exchange, we can provide a number of choices for you to evaluate.

OIL & GAS

Investments in this area can offer the opportunity for attractive returns and significant tax benefits. Opportunities include drilling (developmental, working interest, enhanced recovery) and royalties whereby an investor receives a percentage of any revenues generated from production. Investing in oil and gas royalties can include funds that participate in royalty interests as well as directly purchasing individual royalties. The direct purchase of royalties may be eligible for a 1031 exchange.

PRIVATE EQUITY

An asset class focused on equity and debt securities in private companies oftentimes associated with leveraged buyouts. In reality, private equity is much more complicated and has significant risk as well as the opportunity for generating substantial returns which is why institutions and wealthy individuals have been participating in private equity funds for years. Recently, new funds have been developed allowing a wider range of investors the opportunity to participate in private equity.

LIFE SETTLEMENTS

The sale of an insurance policy by the owner to a third party is called a life settlement. For investors, a life settlements fund offers the potential for attractive returns while investing in an asset class that is largely uncorrelated with other financial markets.

CONSERVATION DEVELOPMENT

This is an opportunity to invest in a land project that can be developed for potential upside, held for future investment, or donated through a conservation easement to a land trust that would allow the land to remain in its current state potentially providing significant tax benefits.

PRIVATE LENDING

Small business lending by banks has been declining for many years. Because of this trend, there are short-term opportunities to lend to small businesses in addition to firms looking for pre-IPO funding.

Securities offered through Emerson Equity LLC, member FINRA / SIPC. This is not an offer to buy or an offer to sell securities. Securities investing carries an inherent risk of loss of some or all of the principal invested. We are not tax professionals. You should always discuss your investments with a tax professional prior to investing. Securities are sold only in those states where Emerson Equity LLC is registered. Irvine Advisors LLC and Emerson Equity LLC are not affiliated.

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