Alternative Investments
Understanding private market opportunities beyond traditional stocks and bonds.
Why Invest in Alternative Assets?
Alternative investments were initially designed for institutional investors to access opportunities outside traditional public markets. Advances in technology are allowing many private investors to allocate to strategies such as private equity, private infrastructure, and private credit.
Expanded Opportunities
Private markets can provide exposure to companies, loans, and assets not available in public markets.
Added Diversification
Private market strategies can diversify a portfolio by adding exposure beyond concentrated public markets.
Additional Sources of Income
Some private strategies may offer differentiated sources of yield relative to traditional public market income sources.
Expanded Opportunities
Private Equity
Private Equity refers to purchasing equity stakes in private companies. Private Equity managers will purchase companies, work to improve their operations, and then attempt to sell the company to a third party. Depending on the strategy, the firm will either buy the entire company or a minority stake.
Private Credit
Private credit investors are non-banks who provide financing to borrowers. Private credit managers often provide financing to private equity firms to execute leveraged buyouts. They may also extend credit to hard asset collateral like credit card receivables, aircraft, or commercial real estate.
Real Assets
Real asset managers own and operate physical assets whose intrinsic value derives from their underlying physical attributes. Real assets can include commercial real estate, energy infrastructure, or public infrastructure. Data centers, energy pipelines, and toll roads are common examples.
Additional Sources of Income
Private markets indices may come with higher levels of income than their public market peers. Private market strategies that generate income can include private credit, asset-based finance, real estate, and infrastructure.
Private Credit
Private credit loans may offer a substantial yield pickup relative to publicly traded bank loans. Structurally, both asset classes are floating-rate senior secured loans made to below-investment grade borrowers. The yield difference may drive higher returns in the private asset class.
Private Infrastructure
Private infrastructure managers buy assets whose value derives from the essential services they provide to customers. Managers often focus on mature, stable, and contracted cash flows, which may offer inflation sensitivity and attractive yields.
Alt Manager Due Diligence Process
Studies show that variability between managers is significantly greater in private markets than in public markets. As a result, rigorous manager due diligence is important. We use a multi-step process to winnow down the universe of possible investments to the ones we believe are appropriate for client portfolios.
Alt Manager Research Process
- Research team identifies managers for diligence across private markets
- Final manager decisions are governed by the investment committee
- Managers are regularly reevaluated to affirm the original investment thesis
Investment Process
Our investment process starts with setting an overall investment strategy. Private investments may not make sense for all clients. Implementation requires selecting a portfolio of assets, executing trades, and providing ongoing monitoring and diligence. Private assets are more complex, and we aim to simplify the process.
Strategize
Determine asset allocation, set private asset strategy
Implement
Manager due diligence, portfolio construction
Execute
Trading and rebalancing, cash and liquidity management
Monitor
Reporting and performance analysis, ongoing manager due diligence
Operational Considerations
- Custody: Private assets can be held at the same custodian as public assets
- Liquidity: Each manager’s approach to liquidity differs by strategy. We invest in assets that may offer limited liquidity, subject to manager discretion
- Minimum Investment Size: Minimums vary, and private assets often require higher minimums than public assets
- Financial Qualifications – Investment strategies that involve the use of alternative investments will only be recommended to clients who meet the definition of accredited investor or qualified purchaser.
Frequently Asked Questions
Alternative investments involve unique risks, including illiquidity and loss of principal. Please see Important Disclosure Information below.
What are alternative investments?
Alternative investments are strategies that fall outside traditional publicly traded stocks, bonds, and cash. Examples can include private equity, private credit, and real assets such as infrastructure and real estate-related strategies. Alternative investments are typically accessed through pooled vehicles or private investment structures and may involve different risks and considerations than public markets.
Are alternative investments appropriate for every investor?
No. Alternative investments are not suitable for all investors. They may involve higher risk, limited liquidity, longer investment time horizons, complex structures, and higher minimum investment requirements than traditional investments. Whether an allocation is appropriate depends on an investor’s financial situation, objectives, time horizon, risk tolerance, and overall portfolio strategy.
How do alternative investments differ from public market investments?
Public market investments generally trade on exchanges and often provide daily pricing and liquidity. Alternative investments are typically less liquid, may have limited redemption options, may be valued less frequently, and can involve additional complexity. Investment outcomes can vary materially depending on the strategy, underlying holdings, and manager execution.
What are the primary risks associated with alternative investments?
Alternative investments can involve risks including illiquidity, leverage, valuation uncertainty, higher fees, operational complexity, and manager-specific risk. Investors may be unable to sell or redeem their investment when desired, and it is possible to lose some or all of the invested principal. There is no guarantee that an alternative investment will achieve its stated objective.
How does FBB Capital Partners evaluate alternative investment opportunities?
FBB Capital Partners applies a consistent investment framework when evaluating opportunities, which may include quantitative review, qualitative manager assessment, portfolio fit analysis, and ongoing due diligence. The goal is to identify strategies that align with a client’s objectives and portfolio construction, while recognizing that all investing involves risk and no process can eliminate the possibility of loss.
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Important Disclosure Information
Past performance is no guarantee of future results. Different types of investments involve varying degrees of risk. Therefore, there can be no assurance that the future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by FBB Capital Partners [“FBB”]), or any consulting services, will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Neither FBB’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if FBB is engaged, or continues to be engaged, to provide investment advisory services. FBB is neither a law firm, nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Moreover, no portion of this discussion or information serves as the receipt of, or a substitute for, personalized investment advice from FBB. A copy of our current written disclosure Brochure discussing our advisory services and fees is available here. The scope of the services to be provided depends upon the needs and requests of the client and the terms of the engagement.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your accounts; and, (3) a description of each comparative benchmark/index is available upon request.
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