Alternative investments encompass a variety of strategies, each offering unique benefits to investors. Private equity involves investing in the ownership of private companies at different stages of their lifecycle. This includes venture capital for early-stage companies, growth equity for more established businesses and buyouts where controlling stakes change hands. Private equity can enhance returns for investors, as it provides opportunities to invest in companies at earlier stages of development before they go public at a premium. Private equity, as the name suggests, also includes a liquidity premium versus public markets, so it can be a good replacement for some of the public equity allocation.
Private credit, also referred to as private debt, involves lending money directly to private companies. This form of non-bank lending can be an attractive option for the fixed-income portion of a portfolio, as it aims to deliver higher income, currently around 9 to 10% annualized, paid monthly.
Real assets, such as infrastructure, real estate, and natural resources, provide another compelling option. These investments involve physical assets and can take the form of either equity or debt. Real assets play a crucial role in creating a well-diversified portfolio by complementing the traditional equity and fixed-income mix. Additionally, they act as a hedge against inflation, as the value of physical assets and the income they generate tend to adjust with the cost of living.
Hedge funds also fall under the broader umbrella of alternative assets. Hedge funds primarily invest in public securities and add value through investment selection and sophisticated financial strategies.
Each of these options can benefit an investor’s portfolio in different ways. Focusing on those providing access to private companies, private equity can enhance returns, private credit can provide higher income and real assets can provide a combination of growth and income while offering inflation protection. Importantly, all three categories — private equity, private credit and real assets — offer returns that are not highly correlated to public markets, which helps reduce overall portfolio volatility and improve risk-adjusted returns.
Before investing in alternatives, it’s essential for investors to understand the purpose of each investment and how it aligns with their financial goals. By taking a thoughtful approach, focusing on long-term outcomes and working with a CIBC advisor or representative, investors can achieve greater portfolio efficiency and potentially higher returns.
CIBC Asset Management is committed to providing market insights and research to help you find the right investment solutions. If you'd like to discuss this market and economic update in more detail or have questions about your investments, get in touch with your advisor or CIBC representative anytime.
