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ALTERNATIVE INVESTMENT

Alternative investment is applied to a group of investments which usually filter outside the widely publicised financial options. The majority of public awareness spreads to the financially regulated markets and traditional options such as stocks, bonds, property and other assets like private equity, hedge funds and financial derivatives.

Within ‘alternative investment’, you have a wide range of options such as art, fine wine, antiques, coins and stamps. These are often referred to as tangible assets, which means that they physical exist. The advantage of this is that even with a terrible economic downturn the items remain to have value because they are physical products and have a limited supply, whereas a stock can plummet and the paper it is written on will become worthless.

There has never been a point in history where ‘rare’ high value items have not met high demand, even in the most recent recession we have seen an increase within markets such as fine wine investment because there has been a lack of options within traditional investments, including previously stable areas like property.


Literature & Data

There is a large amount of literature on traditional investments with outlined information on alternative investment that pales in comparison. This is largely relative to the amount of wealth previously invested on average within portfolios worldwide. In the Lynch / Cap Gemini Ernst & Young World Wealth Report 2003 report the data showed that high net worth individuals tended to place 10% of their assets in alternative assets. Most recently, following the collapse of Lehman Bros, data has suggested that this has changed to 16% over a two year period.

During the last two years the largest emerging alternative assets are now Fine Wine & Gold. As ‘Gold’ previously led the forefront and spurred on much in the way of websites and literature on the data available it is more important to look at the emerging structure of the Fine Wine market.

The London International Vintners Exchange has created an alternative exchange to the FTSE simply for the investment trade of fine wine. The abbreviated term is Liv-ex. There are only a few hundred companies registered within this circle and these companies lead the forefront for fine wine investment, being a member of Liv-ex is a considered a ‘seal of approval’ and currently the market is worth $3.15 Billion.

Prior to the invention of Liv-ex.com, there was FinancialWines.com, which was developed before the turn of the millennium by Philip Gearing, one of the owners of the Cult Wines Ltd & Wineinvestment.org. The system was built by City db engineer Arne Suggett, who previously worked developing risk management systems for investment banks such as TMI. The essence of these systems was to bring the large and expanding investment market in wine, a source of trade and historical data that would follow similar rules to the FTSE as previously mentioned. Largely due to these systems the fine wine market is emerging as on of the safest micro economy markets currently available.

Characteristics

Alternative investment can be primarily seen as a positive choice for investors as they lower risk due to their characteristics and are seen as diversification within FSA structured portfolios.

Characteristics of alternative investment choices include:

  • There has been low correlation between alternative markets & the regulated financial markets
     

  • Market value of the asset can vary between vendor/seller but systems within markets such as ‘Fine Wine’ have become exact and transparent within the last ten years.
     

  • In some areas there may be historical data that suggest low risk.
     

  • Investment within these areas often requires an expert or company advisers within the particular field, especially in terms of sourcing the product.
     

  • The cost and sale of these tangible alternatives can be relatively high as they often fit into the term, ‘micro economy’ and aim at the high net worth market.

 

     
         
         
         

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