In an article for InvestmentNews, Jenny Zhang of Beyond Investments laid out a quick guide for advisors to evaluate alternative investments. It’s not surprising that interest in the asset class has soared in recent months given the various macro headwinds and poor performance for stocks and bonds in 2022. 

Another factor leading to increased interest in alternative investments is that credit is tightening up amid a slowing economy, high-profile bank failures, and a hawkish Fed. This will force many companies to seek capital in private markets, leading to more opportunities for investors in this niche. 

From an advisor perspective, it’s quite challenging especially as there is more risk and less transparency around alternative investments. The key is to understand that the asset class can be part of a diversified portfolio. 

In terms of fundamentals, advisors should first focus on a client’s specific needs and risk tolerance. Then, they should understand the size of the total market and the borrower’s collateral in the vent of a default. Additionally, two more important factors are the capital structure of the deal and its time horizon.

Finsum: Alternative investments are rapidly growing due to the uncertainty of today’s environment. Here is a quick guide on how to evaluate these investments.