What are Alternative Investments?

A guide to Alternative investing

New to alternative investing? Here are a few key terms and how we define them at BlackRock.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

What are alternative investments?

Alternative investments are assets that don’t fall into traditional categories such as stocks, bonds, or cash.

There are two main types. First are private market investing such as private equity, private credit, infrastructure and private real estate. Hedge funds, the second type, operate mainly in public markets but use less traditional tools such as short-selling1 and derivatives.2

Private markets investing

Private market investing is more complex and less frequently traded than public stocks and bonds, and could give investors access to additional sources of return. This makes them illiquid, meaning it’s harder to withdraw your money and more difficult to see how your investments are performing.

Hedge funds

Hedge funds are pools of investment capital that have the flexibility to employ a vast range of trading strategies in both traditional and non-traditional markets. Because of this versatility, hedge funds strategies can be effective diversifiers and potential return enhancers. That said, a hedge fund investment is often considered a risky alternative investment choice and usually requires a high minimum investment.

Risk. Diversification and asset allocation may not fully protect you from market risk.

1Short selling - To sell assets that you do not own. Short sellers aim to make a profit by selling assets they do not own in the expectation that the assets will fall in value and therefore may be bought at a cheaper price to cover settlement of the trade.
2Derivatives - financial contracts, set between two or more parties, that derive their value from an underlying asset, group of assets, or benchmark.

Investors should be aware that the use of derivatives and short positions may involve the loss of all the money you invested, and you may have to pay more later.