Accredited investors have access to a wider range of alternative investment opportunities that can provide higher returns compared to traditional investments. These include private equity, venture capital, hedge funds, private debt, real estate, infrastructure and more. Accredited investors are defined as those with annual income over $200K ($300K joint) or net worth over $1 million excluding primary residence. They can better bear investment risks and have the sophistication to understand complex deals. Alternative investments typically have higher fees but can produce substantially higher returns in excess of public markets over the long run. They also provide diversification as returns tend to be uncorrelated with traditional asset classes.
Private equity and venture capital can produce outsized returns for accredited investors
Private equity refers to investments in private companies not listed on public exchanges. Funds make equity and debt investments in later stage private firms, often to fund expansion and growth. Venture capital provides funding for early stage startup companies, taking on higher risks in exchange for potential outsized returns from new innovative businesses. Historically, top performing venture/private equity funds have delivered annualized returns well in excess of 20% over the long term.
Hedge funds utilize alternative strategies unavailable to regular investors
Hedge funds are actively managed alternative investments that can go long or short, use leverage, derivatives and complex strategies unavailable to regular mutual funds. They attempt to generate consistent positive returns that are uncorrelated with equity markets. Some of the top hedge funds managed by star portfolio managers have posted annual returns averaging 20% to 30% over multiple decades.
Real estate and infrastructure investments can provide stable cash flows
Private real estate investments provide exposure to commercial and residential property. They generate rental income and capital appreciation over long periods. Infrastructure refers to investments in roads, airports, utilities and other essential services projects, often via public-private partnerships. These can provide stable, inflation-protected cash flows uncorrelated to financial markets over their lengthy operating lives.
Commodities and natural resources represent essential physical assets
Commodities like precious metals, oil and agricultural goods provide exposure to physical assets essential to economic activity. Their prices depend on supply and demand fundamentals. Natural resource investments represent stakes in timber, mining and energy companies or physical reserves. They can provide an inflation hedge and diversification for accredited investor portfolios.
Accredited investors have exclusive access to higher returning alternative investments in private equity, venture capital, hedge funds, real estate, infrastructure, commodities and natural resources. These can substantially boost portfolio returns over the long run while providing diversification benefits.