Use Caution with Alternative Investments
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 3 June 2020
⏱️ 25 minutes
🧾️ Download transcript
Summary
How alternative investment opportunities, such as venture capital, private equity, real estate and real assets, are increasing for individuals. Why these opportunities differ from what is available to institutional investors and how to evaluate them like a pro.
Topics covered include:
- What are alternative investments and how are they structured.
- What are 5 factors that determine alternative investment returns.
- Lessons from three recent alternative investment deals including one that defaulted.
- How to evaluate alternative investment opportunities.
Thanks to Simplifi and Policygenius for sponsoring the episode.
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it. |
| 0:10.0 | I'm your host David Stein today's episode 301. |
| 0:13.8 | It's titled, Use Caution |
| 0:16.4 | with Alternative Investments. |
| 0:19.6 | In 2002 to 2003, my family and I had recently moved to Idaho. I set up a one-person |
| 0:26.7 | office. I was still with my institutional investment advisory firm. Our firm had just |
| 0:32.0 | sold to a bank owned a very small percentage, about 2%. an asset management platform, but I also agreed to co-found and lead a direct |
| 0:46.7 | alternative investment research team at our firm. What are alternative investments? |
| 0:53.0 | They are investments outside of the realm of traditional publicly available asset classes, |
| 0:58.0 | like stocks, bonds, reets, and cash. |
| 1:01.0 | Originally, most alternative investments were private opportunities, not available to the general public. |
| 1:08.0 | Usually they were structured as limited partnerships, where there was a general partner selecting the underlying investments. |
| 1:15.0 | These limited partnerships have terms typically about 10 to 12 years or more. |
| 1:20.0 | The investor commits a certain amount of capital or money to the partnership and then the general partners call that money over the next four to five years as they identify investment opportunities. |
| 1:32.0 | An example of an alternative investment identify investment opportunities. |
| 1:32.9 | An example of an alternative investment is venture capital, in which a partnership invest in |
| 1:38.2 | startup companies. |
| 1:40.8 | Alternative investments include private equity in which the partnership invest in more established companies, often taking publicly traded companies private in a leverage to buyout. |
| 1:50.0 | Real assets are another category of alternative investment. |
| 1:55.0 | Real assets include private investments in the energy space, oil and gas, renewable energy, |
| 2:01.0 | timber and farmland. Distressed debt is an alternative investment in which a manager |
| 2:07.0 | purchases debt of a company nearing bankruptcy with the aim of participating in |
... |
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