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Private alternative investments refer to investments that are outside the traditional stock and bond markets. In Canada, private alternative investments include real estate, private equity, hedge funds, commodities, and other non-publicly traded assets.
These investments can offer the potential for higher returns than traditional investments, but they also come with higher risks and more limited liquidity. Private alternative investments are often only available to accredited investors, who meet certain income and net worth requirements, and are able to meet the higher minimum investment amounts required for these types of investments.
Private alternative investments can be an important component of a diversified investment portfolio, but it is important to understand the risks involved and to carefully consider your investment goals and risk tolerance before investing. Consulting with a financial advisor can help you determine if private alternative investments are appropriate for your situation.
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Mitch McLean is an Ottawa based estate planning advisor who operates across the whole of Ontario and with 16 years experience as a trusted financial advisor, can assist you in developing a unique alternative investment strategy and provide expert guidance.
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Private alternative investments have the potential to generate higher returns compared to traditional investments such as stocks and bonds, due to their unique characteristics and the types of assets they invest in.
Private alternative investments can offer a different type of exposure to the market and can help diversify an investment portfolio. By spreading investments across different asset classes, you can potentially reduce your overall portfolio risk.
Private alternative investments can provide access to new investment opportunities that may not be available through traditional investment channels, such as investing in private companies or real estate projects.
Some private alternative investments, such as real estate, may offer tax benefits that can help reduce an individual's overall tax liability.
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Private alternative investments are typically intended for accredited investors in Canada, who meet certain income and net worth requirements. Accredited investors are defined by the Canadian Securities Administrators (CSA) as individuals who meet one of the following criteria.
These requirements are in place to ensure that investors have the financial sophistication and resources to understand the risks involved in private alternative investments.
Private alternative investments may not be suitable for all investors, and it is important to carefully consider your investment goals, risk tolerance, and financial situation before investing. Consulting with a financial advisor can help you determine if private alternative investments are appropriate for your situation.
There are several key differences between private investments and public securities.
Unlike public securities, which are traded every business day and marked-to-market every minute.
Alternative investments and private investments:
1. Dampen overall portfolio volatility as they are not marked-to-market daily
2. May have high long-term growth potential.
On the public markets, public companies are liquid, which means you can buy and sell them daily. Liquidity comes at a significant premium, which investors may not realize.
Privatized businesses aren't as liquid as publicly traded companies and can take a long time to sell. Due to this, a liquidity discount is commonly applied to their valuation, meaning you can purchase a private company with essentially the same qualitative and quantitative characteristics as a public company for a 20-30% discount.
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Mitch McLean is an Ottawa based financial and private alternative investment advisor offering financial planning services across the entire province of Ontario including Ottawa, Toronto , Mississauga , Brampton , Hamilton, Markham, Vaughan and Kitchener .
If you are interested in scheduling a call with Mitch to discuss your financial planning and private alternative investment needs, then simply contact him below and please feel free to connect on LinkedIn and Twitter too!
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Yes, private equity is considered to be an alternative investment. Private equity refers to investment in private companies, either through buying a stake in the company or by providing growth capital. Private equity investments are considered to be alternative investments because they are outside the traditional stock and bond markets and can offer the potential for higher returns.
Yes, private debt is considered to be an alternative investment. Private debt refers to investments in debt securities issued by private companies, rather than publicly traded companies. Private debt can offer higher returns compared to traditional fixed-income investments, but also comes with higher risk.
Private equity is one type of alternative investment, but not all alternative investments are private equity. Alternative investments refer to investments that are outside the traditional stock and bond markets, and can include private equity, private debt, real estate, hedge funds, and commodities, among others. The main difference between private equity and alternative investments is that private equity specifically refers to investment in private companies, while alternative investments refer to a broader category of investments that includes private equity, as well as other types of investments.
Private alternative investments typically come with higher risks compared to traditional investments, such as stocks and bonds. Some of the risks associated with private alternative investments include:
Lack of liquidity
Private alternative investments may be less liquid compared to publicly traded investments, making it more difficult to sell the investment when you need to.
Private alternative investments can be more volatile compared to traditional investments, which means that the value of your investment can fluctuate more rapidly and can be harder to predict.
If the underlying assets of the investment are illiquid, it may be more difficult to sell the investment or obtain accurate valuations.
With private alternative investments, a significant portion of the return depends on the skill and expertise of the fund manager. If the manager's performance is poor, the value of the investment can suffer.
In Canada, private alternative investments are typically only available to accredited investors. To invest in private alternative investments, you need to first meet the income and net worth requirements to become an accredited investor. Once you are an accredited investor, you can invest in private alternative investments through private equity or real estate funds, or by directly investing in private companies or real estate projects. It is important to carefully consider the investment and to consult with a financial advisor before investing in private alternative investments.Another way to gain access to private alternative investments is to invest with a licensed portfolio manager.
The minimum investment amount required for private alternative investments can vary widely and depends on the specific investment. Some private equity funds or real estate funds may have minimum investment requirements of $50,000 or more, while direct investments in private companies or real estate projects may require minimum investments of several hundred thousand dollars or more.
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