Chris Seveney, the CEO of 7e Investments, recently discussed the growing trend of alternative asset classes, or “alts,” that are now accessible to both accredited and non-accredited investors. Regulatory shifts over the past decade, such as the JOBS Act and updated Regulation A, have allowed companies to raise capital from a broader pool of investors, opening up new investment opportunities for individuals looking to diversify their portfolios.
Real estate has been a particularly popular alternative investment, with platforms like Alts Marketplace allowing individuals to invest directly into funds that were previously only available to accredited investors. Other unique alt investments include limited-edition sneakers and streetwear apparel, aging whiskey and wine casks, sports memorabilia, racehorses, and music or podcasting royalties. These assets offer investors exposure to income streams that can provide a unique alternative to traditional investments.
While alternative investments offer potential upsides such as portfolio diversification, hedging against market volatility, and income generation, they also come with greater risks due to illiquidity and the lack of centralized transparency of public exchanges like the New York Stock Exchange. Due diligence is crucial when considering alternative investments, including reviewing offering paperwork, requesting audited financials, and vetting the management and integrity of the sponsors behind the opportunities.
Investors should ask questions about communication practices, the sponsor’s track record, the potential impact of leverage on returns, and the overall viability of the business plan. Starting with a small investment and narrowing down choices to the most promising options can help mitigate risks associated with alternative investments. Consulting with financial advisors and legal counsel can also provide guidance and support when exploring these new investment opportunities.
Ultimately, success in alternative investments requires a blend of prudent research and strategic guidance to manage risks effectively. Investors should have a clear understanding of the specific asset class they are considering and align their risk tolerance accordingly. While alternative investments offer new opportunities for diversification and returns, it is important to approach these opportunities with a healthy dose of skepticism and seek advice from licensed professionals.
