Investing in traditional assets like stocks is no longer everything your company needs to enjoy long-term corporate growth, preserve capital, and adapt to the rapidly changing financial landscape. Today, allocating capital to alternative investments has become crucial, which is what the most prominent organizations are doing.
As a CEO dedicated to your company’s growth, you should diversify beyond traditional markets like the ones offered by brokers listed on https://investingguide.co.uk/. Conventional options like stocks are definitely crucial, but alternatives like real estate should also be in your corporate portfolio. That is the key to unlocking new revenue-generating opportunities, enhancing sustainability, and setting up the venture for long-term success.
Why CEOs Need to Understand Alternative Investments
As a CEO in today’s ever-changing business world, you should focus on traditional investment products like stocks and shares alone. To ensure your organization stays ahead and thrives in this unpredictable age, you must look beyond the obvious and research alternative investments. That is crucial for the following reasons:
-
Portfolio diversification
Companies must invest in a wide variety of financial assets to optimize returns and minimize risk. The financial markets don’t move in sync. For instance, the value of some stocks might go down while crypto assets go up. By understanding alternative investments, CEOs increase their odds of successfully investing in multiple assets and enjoying maximum returns.
CEOs familiar with alternative investments are better at risk management than their counterparts. As a CEO with sufficient know-how, you are better equipped to avoid the risks of investing in a single item. Remember that in the world of investing, putting all your eggs in one basket is never a good idea, both for individual and institutional investors.
-
Strategic capital allocation
As a CEO, you are a steward of your company’s capital. You have crucial responsibilities, including directly or indirectly deciding where and how elements like excess cash and employee pension plans should be invested. Understanding alternative investments is one of the keys to ensuring you do that optimally.
If your knowledge is exclusively limited to conventional options, the odds are that you make suboptimal capital allocation decisions. For instance, you’ll likely keep millions of idle funds in traditional savings accounts that offer below-inflation returns.
-
Gaining a competitive edge
Remaining competitive and going toe-to-toe with giant brands in the modern economy demands more than just operational excellence. You also need financial foresight, a crucial aspect lacking in most CEOs whose companies crumble within less than a decade.
Financial oversight in this context covers your ability to understand and leverage investments as a CEO. With sufficient knowledge, you can make profitable moves and tap into capital sources that will help your company expand and outmatch the competition.
What Are Alternative Investments?
In a nutshell, alternative investments refer to assets that fall outside conventional options, such as publicly traded stocks. They are often accessed privately through channels like boutique advisory firms and investment banks. That said, you can still use public channels open to all investors to access some alternative investments, such as REITs and alternative mutual funds.
Most alternative investments are tailored exclusively for institutional investors and require larger capital commitments. But high-net-worth individual investors can leverage them. They are also less liquid than their counterparts, so your odds of cashing out at will are minimal. You have to hold most alternative investment assets for several years – the mandated period is often more than half a decade.
Another thing you should know is that alternative investments are generally associated with minimal regulation and transparency. Since many target a specific category of investors, those who offer them are typically not required to showcase their holdings or performance publicly.
Top Alternative Investments CEOs Should Know
Now that you know what alternative investments are, let’s explore a few options that should be on your list as a CEO.
-
Venture capital
While leveraging venture capital, you fund the most promising early-stage startups. In exchange, the companies give you equity, which is like buying a portion of a young company. The best start-ups to invest in at the earliest stage include companies that deal with tech, fintech, and healthcare products. That is recommended because such startups often offer highly scalable products, capitalize on rapid innovation, and cater to growing markets.
-
Private equity
Private equity is an alternative investment that allows you to invest capital in private companies. You can do that via a buyout, which is simply acquiring a controlling interest in a specific company. You can also opt for growth equity, where you invest in fast-growing companies. Finally, as a CEO looking to leverage private equity, you can buy struggling companies and help them do better through restructuring, management changes, and other strategies.
-
Real estate
Real estate is one of the most battle-tested alternative investments. As the name implies, this option is primarily about investing in commercial, residential, and industrial properties. For example, you can buy or invest in apartment complexes, office towers, or manufacturing plants through real estate funds. With such investments, your company can enjoy consistent income and reap handsome capital gains when the time comes to cash out.
-
Crypto assets
Bitcoin and thousands of altcoins are gradually changing from mere speculative assets to profitable financial tools. Many companies, including Tesla, MicroStrategy, and GameStop, have invested in these digital assets. You should consider investing in them since they have high growth potential and often generate outstanding returns within a short time. But beware of extreme volatility and regulatory uncertainty.
Pros and Cons of Alternative Investments for Business Leaders
Alternative investments have both pros and cons you should know of before investing your company’s finances. Here’s a brief overview:
Pros
- They can help you spread risk, especially if you’re already investing in conventional assets.
- Most alternative investments are tailored to predetermined risk-return profiles and actively managed by professionals.
- You can invest in alternative options that complement your company’s goals and operations, like financing a supply chain startup.
- Options like venture capital and crypto assets have high potential.
Cons
- Many alternatives have low liquidity, especially private equity and venture capital.
- Alternative investments are often lightly regulated, complex, and opaque.
The pros of understanding and leveraging alternative investments outweigh the cons. But to get the most out of alternative investing, you must choose assets that align with your company’s short-term and long-term goals. Also, research the risks associated with each alternative before committing large sums of funds.
