Top Alternative Investment Trends To Watch In 2023

Conventionally, investments are often associated with stocks, bonds, mutual funds, etc. Many pay little attention to the collective class of assets like real estate, private equity, collectibles, asset leasing, invoice discounting, etc. These are often called alternative investments due to their non-market-linked nature. 

Alternative investments are typically considered a strategy to produce greater returns with no or little correlation to the market. This is due to factors like the capital appreciation in real estate investments, problem-solving attributes at a mass scale leading to scalability, a rise in the use of technology, etc. Keep reading to have a detailed understanding.

Importance Of Staying Updated On Emerging Trends

According to the Financial Express, after the 2008 market crash, there was a surge in the popularity of alternative investments, as retail investors started allocating their funds towards different forms of investment. People who had previously relied on conventional investments extensively saw the market value of their assets drop sharply at that time. This encouraged many of them to explore alternative investing options. Alternatives typically trend oppositely from traditional assets. This is because they have little to no correlation with the conventional market. As a result, they are beneficial assets to diversify your investment portfolio. They also reduce the risk of putting all your eggs in one basket. 

How Future Trends Can Impact Investment Strategies 

The trends during the economic downturn altered the existing investor space and expanded it to others more extensively. However, they demonstrate an economy's inherent principles, strengths, and weaknesses.

Moreover, these trends can help you understand long-term megatrends and short-term small trends to help secure your investments and reduce risk. Harvard Business School states three trends as forerunners in setting the stage for alternative investment markets. These shifts are indirect to direct investing, public companies to private enterprises, and active to passive investing. Some other long-term trends you can look at are:

• Globalisation
  Globalisation reduces trade barriers and the emergence and sharing of new technologies that allow for the rapid movement of goods, services, and capital across borders. This leads to a rapid increase in international trade, awareness, and investment opportunities in the far corners of the globe. For example, Indian Investors can invest in US Stock markets, presenting an opportunity for interested investors.
• Government Regulations
  Regulatory reforms, internal and external, affect investment sentiments deeply. For example, the proposal to allow direct listing of Indian startups on foreign exchanges may inculcate investor’s interest in startup equity. Similarly, tax reforms, subsidies, and interest rate variations provide ample investment opportunities.
• Technological Advancements And Innovation
  According to the Economic Times, over the past 4-5 years, the Indian alternative investment industry has experienced a rapid growth rate of over 30% CAGR¹. This could be due to the growing number of start-ups, increased exposure, and technological innovation. Technological advances have driven the majority of value chains, including the alternative investment market, which is no exception.
• Environment, Social, And Governance (ESG)
  A well-implemented ESG scheme in businesses increases profits, the quality of life for employees and the communities they serve, and our planet's health. With increasing awareness and implementation of ESG in the financial landscape, alternative investments that could navigate its complexities will be the preferred choice of investors. For example, Green bonds are gaining popularity on account of the healthier purpose they are serving.

Opportunities And Challenges In Investing In Emerging Markets 

Alternative investments are a preferred source of income for many due to their high-risk, high-reward nature. The substantially high-interest rates offer income generation beyond the capital appreciation of selling the asset. Due to the exclusivity of the stock market, they also provide a diversification opportunity. The easy accessibility to discovery platforms like Grip enables beginners to test the waters and build their investment portfolios.

Alternative investments are a passive investment strategy for today’s Gen-Z investors. They seek returns without having to manage assets actively. The low volatility plays a major role in enabling this passive investment opportunity. The following are the factors behind the enhanced interest of investors in alternative investment:

• Shifting Investor Preferences And Demographics: As the generations change, so do their investment preferences. Today’s generation prefers more passive strategies and is willing to try riskier opportunities for higher returns. They are venturing into alternative investments, away from traditional stocks, shares, and bonds. 
  The 2008 crash and the COVID-19 pandemic also encouraged investors to explore alternative investments instead of sticking to the norm. Today, the market is also open to low-ticket-sized investors with options like fractional real estate and partial ownership that were once considered capital-intensive. 
• Impact Of Generational Shifts On Alternative Investments: The rise in Gen-Z investors shows a notable upward trend in alternative investment funds. 

Conclusion

Historical events shape future trends. As in the investment landscape, famous economic crashes taught us portfolio diversification and the importance of non-market-linked investment tools, i.e. alternative investments.

With the rise in investors' attention towards alternative investments, it is vital to stay aware of recent trends like globalisation, government regulations, technological advancements, etc., to benefit from inflation-beating, risk-adjusted investments.

Explore Grip to learn more about emerging trends in alternative investment and the returns that they can offer.

References:

1. The Economic Times <https://economictimes.indiatimes.com/small-biz/money/indian-alternatives-investing-and-buyout-trends-and-the-role-of-policy/articleshow/90216649.cms?from=mdr> 

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