Displaying items by tag: financials

Generation Z is defined as being born in between the mid 90s and mid 2010s. Older members of this group are starting their careers and beginning their investing journeys. This group is shaped by events like the 2008 financial crisis and the pandemic. They also are the first generation to grow up with the Internet and have a much more intuitive relationship with technology especially when it comes to managing finances.

In a piece for USA Today, Jon Stojan explains why alternative investments are gaining traction with Generation Z. Some of the unconventional options include investing in art, wine, farmland in addition to more known options like cryptocurrencies and precious metals. 

According to a survey from the Lansons Group, only 10% of Americans have invested in alternative assets but 30% of Gen Z investors have done so, highlighting the appeal of alternatives.

The most commonly cited reasons are a potential for high returns, hedging against inflation, and interest in tangible, enduring value. However, there are some drawbacks to these asset classes especially as their performance is unproven through multiple market cycles unlike stocks and bonds. Additionally, they tend to come with higher costs and less liquidity.

Finsum: Alternative investments are gaining traction with Generation Z investors who are looking to invest in asset classes beyond just stocks and bonds. Examples include cryptocurrencies, precious metals, artwork, farmland, and wine.

Following the abysmal performance of stocks and bonds in 2022, it’s understandable that alternative investments have been gaining strong traction over the past year. Moreso when considering that alternatives delivered better returns while reducing volatility. 

In a CNBC article, Kate Dore discusses survey results from the Financial Planning Association that show nearly 30% of advisors are investing in ‘alternatives’ for their clients. These advisors mentioned diversification, lower portfolio risk, and higher returns as major factors in this decision. 

In contrast, 30% of advisors are aware of alternative investments but are electing to not put client funds in these vehicles. Many of these advisors cited higher fees and expenses, lower liquidity, higher borrowing costs, and a lack of transparency as major concerns. Another concern is that clients are not able to easily access these funds in case of an emergency.

There’s a wide disparity in the asset class as it includes a variety of categories like hedge funds, private equity, real estate, commodities, and structured products. Therefore, even more due diligence is required given lower levels of regulation and oversight. 

Finsum: Alternative investments are increasingly being embraced by advisors, especially after their strong performance in 2022. However, some continue to eschew the category due to a variety of concerns.

In a piece for ProfessionalPlanner, Michael Collins lays out some pros and cons of investing in alternatives. Overall, he takes a positive view of the asset class as it can boost returns and diversification. Additionally, it can allow investors to take advantage of short-term market inefficiencies which is more difficult through conventional investing and the most popular assets like stocks, bonds, or real estate.

Alternative investments are seeing strong growth over the last decade due to regulatory changes, and technology leading to increased access for private markets. In 2022, the asset class performed particularly well especially relative to stocks and bonds which were both down double-digits. 

One challenge is that alternative investments come in many different forms. Some examples include short-selling, a long-short portfolio, global macro, event-driven, arbitrage, private equity, venture capital, and private market investing. 

There are some drawbacks to consider. For one, there is less liquidity and transparency especially relative to more popular asset classes. Additionally, many alternative strategies do employ leverage which can be a double-edged sword during periods of economic or monetary stress. Another challenge is that alternative investments typically have higher fees than traditional investments which can erode returns over long periods of time. 

Finsum: Alternative investments are seeing a surge in interest due to their strong performance in 2022 and wariness about the economy and traditional asset classes.

In remarks at the BNY Mellon Pershing Institute covered by InvestmentNews’ Jeff Benjamin, former SEC Chair Jay Clayton shared his thoughts on the current regulatory environment, and why he believes that the SEC is doing many investors a disservice by preventing them from investing in private markets.

Clayton served as SEC Chairman under former President Trump between May 2017 and December 2020. He drew some differences from his tenure and the current administration, noting that “it’s pretty clear we’re in a very highly business-skeptical and commercial-skeptical regulatory environment.” Currently, Clayton serves as the nonexecutive chair at Apollo Global Management. 

Clayton also sees alternative investments as another area where the SEC is being overly restrictive, and it’s hurting retail investors by depriving them of opportunities that are available to institutional and high net-worth investors. He said that it’s hypocritical that retail investors are able to buy leveraged ETFs or options but not private investments that have significantly less risk.

In order to make alternatives available to all investors, he said that regulators would have to change their approach, and asset managers would also have to introduce appropriate products. 

He did acknowledge a conflict of interest, since Apollo has a major presence in private markets.

Finsum: At a recent conference, former SEC Chair Jay Clayton shared his thoughts on the current regulatory environment, and why he believes alternative investing needs to be further democratized.

In an article for the Institute for Management Development, Maude Lavanchy discusses the opportunities and risks of venture capital (VC). It’s not surprising that interest in alternative investments has increased following 2022 when both stocks and bonds posted negative, double-digit returns.

As a result, institutions and asset managers are increasing the amount that they allocate to alternatives and specifically, venture capital. Typically, venture funds focus on early-stage, high-growth companies. This obviously comes with considerable risk but also the potential to generate significant returns. These funds do tend to have higher costs and fees with much less liquidity 

Historically, VC has outperformed stocks and bonds. Between 1987 and 2022, VC had an average return of 59% compared to 15.9% for the S&P 500 and 6.8% for Treasuries. Two caveats are that venture returns tend to be quite volatile, and returns will be lower as more capital enters the ecosystem, leading to higher valuations and more generous terms for startups.

So, VC is most appropriate for investors that have a long time horizon and are OK with the lack of liquidity in exchange for the increased diversification and returns.

Finsum: VC is seeing renewed interest in 2023 due to its outperformance relative to stocks and bonds in addition to diversification benefits.