ALTERNATIVE INVESTMENTS; the “New” Form of Investment
Investment comes
in various forms, and all accumulations of wealth are done or made via the
investment process.
If we stop, and
ask ourselves what is wealth? Or who is rich? Or who is poor? Poverty, riches
nor wealth will reward us with a soothing answer nevertheless, we all have the
answers in ourselves, and we as a race through institutions like the World
Economic Forum (WEF), United Nations (UN)... have achieved global integration
to a point of redefining the world as a true village.
Time, space
and labor; have been masters that have governed man, his logic and
creations to some form of synchronicity seen, felt or not. Therefore it's safe
to say to the human being; time, space and labor is the true wealth and riches.
Labor bridges
between time and space: so, how do we (as a global community) or you as an
individual consummate the latter and the former to make whole? The World
Economic Forum “Alternative Investments 2020: An Introduction to Alternative
Investments” report of July 2015 has attempted to break down the complex
workings and sometimes opaque history of alternative investments.
So what exactly
are Alternative Investments? Well basically these are those not part of the
traditional assets such as cash, stocks or bonds.
Figure 1 as from
the report shows an overview of the diverse types of investment ranging from
⁃ Traditional investments (i.e. Savings,
bonds and etc.)
⁃ Tangible investments (i.e. Commodities,
real estate...)
⁃ Alternative investment (i.e. VC, hedge
funds and private equity)
⁃ Other investments (i.e. Art, wine and
antiquities...)
Figure 1 portrays
how all these investment classes arc-in the industry spectrum and at the core
of it all are the "alternative investments". Before we get caught up
in all these economic jargon let's draw a baseline and ask ourselves what
investment as a concept or diction means:
The Oxford
dictionary refers to investment as "the act of devoting time, efforts
or energy expecting a worthwhile result."
In this sense,
investing is a behavior labored for, in time and space for each one and all of
us to achieve our desires: poverty being the downside of all of this. The
source of investments in many scenarios is savings, figure 2 as from the WEF
report shows the breakdown of savings into various forms of Investments or
rather the Investment Cycle as it is referred to.
Alternative
investments (AI) since the 1920's-60's down to the present are those which have
historically utilized distinctive fund structures and which only wealthy
individuals and institutions have had access to. Alternatives will thus
encompass a wide range of asset classes, including private equity real estate
and private equity infrastructure funds, secondary funds, and private debt
funds. In particular, the WEF report has focused on three asset classes: private
equity
buyouts, hedge funds, and venture capital. Historically, these three
have played the most important role in the evolution of the industry and have
accounted for the vast majority of the capital allocated to alternatives.
Private Equity Buyouts; Private equity
typically refers to investment funds organized as limited partnerships that are
not publicly traded and whose investors are typically large institutional
investors, university endowments or wealthy individuals.
Hedge Funds; A hedge fund is an investment fund pools
capital from accredited individuals or institutional investors and invests in a
variety of assets, often with complex portfolio-construction and
risk-management techniques.
Venture capital; This is a type of private equity,
a form of financing that is provided by firms or funds to small, early-stage,
emerging that are deemed to have high growth potential or which have
demonstrated high growth.
In a nutshell,
how do these asset classes create a worthwhile time and space for our labor so
to optimize our desires?
1. Alternative
investments have grown to become a critical component of the global financial
system. (Through providing capital flow for liquidity, leverage, diversity and
innovation)
2. Alternative
investors serve capital providers with higher returns and greater
diversification. (I.e. Risk to reward ratios are favorably capped attracting
pension funds, sovereign wealth funds, high net worth individuals)
3. The
impact of alternative investments on the real economy is substantial. Of
course, not all are unambiguous but this is the tight niche fiscal and monetary
regulators have to be versatile for the best interest of the public and policy.
The complete WEF Alternative Investment Report can be found on the link below
http://www3.weforum.org/docs/WEF_Alternative_Investments_2020_An_Introduction_to_AI.pdf
Article Concept Submitted by; Ian Sailale amsosaiy@gmail.com
Edited by; Kapila Kavenuke kapilakavenuke@yahoo.com
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