Thursday, 11 July 2013

Investing in Alternatives Generates Interest Among Investors

Ever wonder why the global stock markets have had such a hard time in the last 15 years? There are invariably many reasons, greed being one of them. Bad speculation practices are another reason, as is banking and investment regulations that are out-dated and easily exploited by the industry's major players. One other big reason is that these traditional investments options, such as stocks, bonds and cash deposits, have more competition in the market nowadays; namely alternative investments.

There is just so much money in the global investment pool to go around and in the past century, the over-whelming majority has gone into traditional offerings. Times have changed as investing in alternatives has become increasingly popular, particularly since the turn of the century. Their rise in appeal happens to stem from a timing standpoint, as the global markets suffered huge losses due the Y2K fiasco that contributed to the NASDAQ losing much of it’s value virtually overnight. With their confidence shattered investors took whatever money was left to start-over and went in search of alternatives. Coming as a surprise to many investors, turmoil happened again when the U.S. banking scandal erupted in 2008, which subsequently led to the European Crisis that still lingers today.

To illustrate the massive migration from traditional options to alternative investments, consider this: In 1997 global pension fund assets, that were held by the 100 largest asset managers dealing with pension funds, represented 5% of the total investments. In 2012, that number rose to 19%, while showing an increase of 8% from the year before, and rising to $1.3 trillion. This is a significant shift in investors' assets and it has only added to the pressures on global stock markets to generate more interest from investors. If the stock markets did not give their investors such a roller-coaster ride, perhaps many of them would not have switched to the much more appealing alternatives.

Let us be truthful. In the end, investors only care about one thing and that is profits. If investments are not delivering profits, then it can be expected that investors will shift their investment money into something that can deliver long-term investment success. Nowadays, it happens to be the unexpected alternatives that are earning investor confidence and finding their way into a growing number of diversified portfolios.

2 comments:

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