However, there also exists another interesting category of investment assets referred to as alternative investments. Technically, any investment asset that is not a traditional asset is an alternative asset.
The list of alternative assets is truly endless. Some examples of alternative assets are equity investment in startups and investments in assets like art and wine.
In this article, we will look that at the top 10 alternative investment assets to look out for in 2022. So, let’s go!
1. Private equity in fast growing startups
It is well-known that private companies or startups grow faster than public companies. By the time a startup becomes public, it has already experienced its fastest growth phase.
However, retail investors have been unable to invest in these rapidly growing startups because of regulatory and ticket size challenges.
But that time is now gone. Even retail investors can invest in alternative investment assets like unicorn startups with just $1000!
2. Litigation funding
Suppose you have been wronged by a Fortune 500 company. You are so angry that you want to sue them for $1 million. So, you talk to a legal firm on how to proceed. The firm tells you that you will have to shell out $100,000 to stand a chance of winning in court.
That’s a bummer!
You know you will win for sure but just don’t have the money to fight it out against a company with unlimited money and power.
A 3rd company sees this and approaches you with a proposal. They say they will help you with the money and legal power required to fight the case. But if you win the case they will take 70% of the money that you are suing the Fortune 500 company for.
This is called litigation funding.
Not only does litigation financing level the legal playing field but also provide an excellent investment opportunity.
3. Equipment financing
Companies do not buy all the heavy and expensive machinery they use for manufacturing goods. They lease it. For example, airlines lease most of the aircraft in their fleet.
In equipment financing, you can buy the machinery and lease them out to companies that require them. Equipment financing provides a regular income from stable cash flow generating companies.
4. Carbon credits
Companies and individuals have a carbon footprint. This causes damage to the environment and results in undesired phenomena like pollution and global warming.
To reduce carbon footprint, governments have done two things - * Placed a carbon footprint limit on each company/industry * Issued carbon credits that can be used in case you overstep your carbon footprint limit
Some companies will always overstep their carbon footprint limit. These companies will have two options left - either pay hefty penalties or purchase carbon credits from companies that have some to spare.
The value of these carbon credits goes up as more and more companies find it difficult to stay within their footprint limits and demand more carbon credits.
In the following image, you can see how the price and trading volume of carbon credits has increased in recent years.
But what exactly do these carbon credits do? Well, they are simply investments in projects that are carbon positive for the environment. For example, forestation activity like agriculture.
5. Real estate - data centers
Everyone knows that real estate is a generational asset.
But very few know that data centers yield the highest real estate return - as high as 21%.
Data centeres are towers after towers of computers that do heavy data work and guzzle electricity.
Data centers are leased by big tech giants who have strong business moats and stable cash flows. Not only are data centers high yielding real estate assets but also have one of the lowest default rates.
6. Student financing
Student loans turn out to be horrible for most graduates. In the US, the total outstanding student loans amount to the GDP of England.
An alternative way for students to finance their education is through ISA or income sharing agreements.
In ISA, HNIs and other entities fund the education of promising and worthy students who want to study at the best universities. In return, the student agrees to share 6–17% of future incomes with the lender.
The agreement comes to an end when an agreed upon amount has been paid back by the student. This is either a fixed amount or a multiple of the tuition fees.
Students agree that this is a much better way of financing their education. The terms of student financing are more lenient than student loans.
For example - Student loans start from day 1 after graduation even if the student is not employed whereas student financing agreements come into effect only when the student is employed.
7. Fine wine
The most expensive wine is usually the most aged.
So, what you can do is produce wine wholesale using the finest grapes and the best processes. Age it in barrels for a few years. And sell it at a much higher price than it cost you to produce it.
Just like wine, ageing is what adds the most to whiskey’s flavour and cost.
The barrels required to store whiskey are expensive. So producers generally use these barrels on lease.
This creates an investment opportunity of owning the barrels and earning a cash flow from the whiskey producers.
Like real estate, art is a popular generational investment asset.
Certain artworks do really well in auctions and can be great investment assets. If you can identify these artworks in advance, you stand to make great money by buying them today and selling them in future.
In fact, art as an investment asset has beaten the S&P 500.
10. Media royalties
Music, like art, transcends generations and borders.
You can buy music and media that will earn periodic royalties and create an alternative investment asset out of it!
Music royalties are potentially an infinite cash flow generating asset because music is not perishable. As long as people listen to the music you own, you make money in royalties.
When most people think of investing, they generally think of traditional investments—namely stocks, bonds, and cash. Whether it’s the index fund in your 401(k) or the cash in your savings account, these traditional investments are common for most ind
1 year, 1 month ago
Fine art is arguably the greatest asset class of all time..Fundrise makes it easy to get started investing in real estate. AcreTrader opens the door to farmland, a unique investment option with low volatility and high returns.
11 months, 3 weeks ago