Alternative investments are taking off but be careful as they can be very complicated

FANCY a stake in an airport, gas plant, overseas skyscraper or foreign corporate debt? Alternatives are a growing trend for investors.

Plane taking off

CHOOSING where to put your money is getting more complex as many experts say the traditional choices of cash deposits, property and shares are no longer enough.

Investors and super funds are increasingly looking to other assets such as infrastructure, corporate credit, hedge funds and private equity. These help diversify growth options and provide better protection against falls amid increasing turbulence in financial markets.

Findex head of investment research Stefano Cavaglia says a good example was when share prices tumbled in January and February, but areas such as infrastructure, bonds, credit and real estate rose.

“That’s testament to the whole concept,” he says. “Don’t bet the house on one or two asset classes.”

It’s extremely rare that every type of investment sinks at the same time. During the GFC almost everything went south, but government bonds did very well as interest rates were cut.

Cavaglia says investors have been turning to alternatives and the trend is likely to continue as more options become available, their quality and risk management improve, and products become more liquid — meaning they’re easier to buy and sell.

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Investors and super funds are looking to diversify their investments from cash and shares into infrastructure and property and other areas.

However, novice investors should approach alternatives “very carefully”, he says.

“These are complex investments that require sophisticated consultants to find the road to solid risk adjusted returns and are willing to let you be in the driver’s seat.”

Infrastructure investments, such as airports and utilities, have become more popular and while many super funds invest directly in these assets, the options for individual investors remain limited.

Catapult Wealth director Tony Catt also has noticed an increase in people moving towards non-traditional assets, but warns that they need to understand where their money is going.

“Everybody is looking for something that’s not correlated to the traditional asset sectors of equity and property,” he says.

“But it’s a bit of a two-edged sword, though, because it comes at the expense of liquidity and transparency in fees. Not everyone’s comfortable. Traditional sectors can be lower cost, liquid and easy to understand.”

Catt says anyone looking at alternatives must first understand the structure of the investment. “Don’t ever buy anything until you know how to sell it — there are still some funds today locked up nine years after the GFC.”