Frequently Asked Questions (FAQ) on alternative investments

Alternative investments refer to strategies beyond holding shares, bonds or cash. These include hedge funds, private assets (private equity, private real estate and private debt), commodities, managed futures and other derivatives, as well as specialised investment areas such as fine wine or stamps. They are typically used by investors seeking greater diversification or higher potential returns.

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The term hedge fund is often used broadly, but normally refers to a type of investment company or private partnership that takes unconstrained long or short positions across asset classes and uses more sophisticated financial instruments such as derivatives. Today, the sector spans many approaches from activist equity investors to multi-strategy quantitative traders.

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Private equity (PE) describes investments that represent a shareholding in a privately held company, whose stock is not quoted on a public exchange. Capital for private equity is raised from private and institutional investors and can be used – among other purposes – to fund start-ups (venture capital), make acquisitions (growth equity, buyout), or to strengthen a balance sheet (special situations).

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Private debt, or private credit, as an asset class refers to loans made by institutional investors to companies. They are distinct from bank loans in typically being held in investment funds, and from corporate bonds in not being traded.

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Real estate funds invest directly in commercial property, which could include offices, retail or industrial assets. The funds seek to make a return by taking rent from tenants and from the capital appreciation of the properties.

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