Traditionally, the stock market, mutual funds, bonds have been the go-to investment avenues for individuals seeking to make their money work for them. These options have historically been popular due to their perceived stability and established markets. While they can yield solid returns, they are also subject to market volatility and may not always provide adequate diversification.

Alternate or alternative investments refer to investment opportunities that go beyond the conventional asset classes. They offer diversification by exploring non-traditional avenues, which may have lower correlation with traditional investments. This can help reduce overall portfolio risk and potentially increase returns. Let’s understand the different alternate investments in the simplest manner:‍

• Private Equity: Unleashing the Power of Unlisted Companies
  Imagine being a part-owner of a thriving company, even before it goes public! That’s what private equity is all about. It involves investing in companies that are not listed on the stock exchange. When the company grows and flourishes, one can sell their stake and hopefully make a tidy profit. These investments are often made through private equity funds, which pool money from multiple investors to make large-scale investments.
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• Venture Capital: Fueling the Fire of Innovation
  Venture capital is for the one passionate about cutting-edge technologies and who is eager to support the next generation of groundbreaking ideas? Venture capitalists provide financial backing to early-stage companies with enormous growth potential. These companies are often in their infancy, dreaming big but lacking the funds to make it happen. By investing in these startups, VCs become their financial superhero and shareholder, helping them bring their innovations to life. And if all goes well, their investment can skyrocket as the company grows and attracts more investors or even goes public.
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• Hedge Funds: Where Complexity Meets Potential Rewards
  If one is up for a little adventure and is ready to explore more advanced investment strategies, hedge funds might be that thing. These investment vehicles are managed by professional fund managers who use various techniques to potentially generate higher returns. Unlike traditional mutual funds, hedge funds have greater flexibility in their investment approaches. They can engage in short-selling (betting on the decline of a stock's price), leverage (using borrowed funds to magnify returns), and other complex strategies. But, hedge funds often require a higher minimum investment and they are typically available to wealthier individuals and institutional investors.
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• Real Estate Investment Trusts (REITs): Dabble in Real Estate Without the Hassle
  Love the idea of investing in real estate but not keen on managing properties or dealing with tenants? Fear not, for REITs are here! REITs are companies that own, operate, or finance income-generating real estate properties like commercial buildings, shopping centers, or apartments. By investing in REITs, the investor become a part-owner of these properties, entitled to a share of the rental income, dividend income and potential property appreciation.
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• Commodities: Tapping into the Tangible Assets
  If one is intrigued by the raw materials that fuel our economy, commodities might be an avenue worth exploring. Commodities are tangible goods such as precious and base metals (like gold, copper), energy products (like oil), and agricultural products that are typically consumed (like corn, wheat) or used in the manufacture of goods (like cotton, sugar), that can be traded in various forms. One can invest in commodities through futures contracts, options, or exchange-traded funds (ETFs). Investing in commodities can provide diversification benefits and act as a hedge against inflation.
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• Arts & Collectibles: Monetizing the passion
  Investing in a stunning painting, a rare vintage car, or a treasured piece of sports equipment. These unique assets have emerged as intriguing alternate investments, offering the opportunity for both personal enjoyment and potential appreciation in value. However, venturing into this realm requires expertise, thorough research, and careful consideration of factors like authenticity, condition, and market trends.
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• Digital Assets: Where innovation meets investment potential
  Digital assets (like cryptocurrencies, non-fungible tokens (NFTs), etc.) share a common characteristic, they utilize distributed ledger technology (known as blockchain) to store, record, and validate transactions. These assets have taken the financial landscape by storm. However, such investments bring in risk with them. The market for digital assets is highly volatile, with prices experiencing significant fluctuations. The regulatory landscape is still evolving, and there is limited oversight compared to traditional financial markets.

However, it important to keep in mind that such avenues are generally less liquid - less regulated – less transparent, and not easier to value vis a vis debt and equity investments. Also, certain avenues, such as private equity and hedge funds, may come with lofty minimum investment thresholds and exclusive entry requirements.

At this juncture, it would be interesting to look at few interesting insights from 2022 Global Alternative Fund Survey conducted by EY:

• Almost 4 in 10 investors indicate that they view the current state of the alternatives industry as the same as a year ago and expect the industry to continue to grow at the same pace as the past 5 years.‍
• Top three allocations in alternative asset classes were hedge funds (32%), private equity (26%), and real estate (21%). While Hedge Funds saw a slight decrease of 1% compared to 2019, Private Equity was static at 26%, and real estate experienced a decline of 2%.
• Private credit has remained an important investment avenue because many investors believe that during times when interest rates are rising and economic conditions are deteriorating, there will be a cycle where borrowing becomes more challenging. Essentially, investors see potential in lending money to businesses who may face difficulties accessing traditional forms of credit from banks. By providing these borrowers with loans, investors can earn attractive returns on their investments while helping to meet the borrowing needs of those who may be overlooked by traditional financial institutions.

‍While alternate investments offer exciting opportunities, they can also come with increased risks. While traditional investments remain the foundation of many portfolios, incorporating alternate investments can provide a path to diversification. It's essential to conduct thorough research, consult with financial professionals, and diversify your portfolio wisely.