Art, Wine, and Loans: Alternative investments on the Rise

Bond verdi

Bond verdi

October 21. Investing in traditional assets such as stocks, bonds, real estate, cash, or cash-like assets might look straightforward on the surface, but there are significant barriers to entry. Retail investment is burdened with considerable costs, while large-scale investment is rigidly constrained for anyone but accredited investors. Added to this is the lack of innovation, volatile markets in the face of the pandemic, and a low flexibility to offset risk. For those seeking a wider pool of assets, there are multiple opportunities in the alternative investment world. Alternative assets are those that fall outside the conventional investment categories and can include precious metals, arable land, and energy assets. A subset of alternatives also includes curated investment in the form of hedge funds, as well as collectibles such as fine wine, jewelry, numismatic coins, and art. There is no limit to collectible investments, as value can be found in designer sneakers, baseball cards, or even Barbie dolls.

For example, Masterworks, an investment startup specializing in fine art, allows investors to own shares of famous masterpieces. During the pandemic, the company has sold 15 artworks by means of partial ownership, including those of Banksy and Andy Warhol, worth at least $1 million. Rally Rd, a platform designed for buying and selling equity shares in collectibles like classic sports cars, vintage pocket watches, or rare books, has managed to expand its presence even amidst the pandemic and now boasts around 200 000 investors, many of whom are millennials.

While alternative investments hold their own share of risk and require much more diversified expertise, selecting the right type of asset has the potential to become a source of stable returns. Some alternative investments will become long-term stores of value, while others can also generate passive income. Further, alternative assets can build up a highly diverse portfolio, which can rival the variability in traditional asset picking. Also, alternatives are often valued in inverse correlation to traditional assets, a feature that may boost future demand for non-standard portfolios.

Alternative investments also include investing in lawsuits, also known as litigation financing. Such strategy involves finding and funding third-party plaintiffs—either companies or consumers—in return for a share of any awarded damages if the case is won. Even amidst the pandemic, there have been at least five major litigation finance companies that have raised over $100 million. One of those firms—LexShares—allows individual investors to purchase shares in commercial legal claims for as little as $5,500, and boasts of winning 70% of the total 43 cases in its portfolio. The global investing in lawsuits market is expected to reach $22.3 billion by 2027—more than a two-fold increase compared to $10.9 billion in 2018.

Another alternative asset currently on the rise is loans. Bypassing the traditional bank and credit industry, which are more cautious and rigid in the pandemic context, investing in loans has the potential to yield higher returns in comparison to other debt products—an option that has been gaining traction among those seeking to diversify their portfolios and generate passive income. For example, in 2020, Mintos, the EU-leading alternative investment platform for investing in loans, saw its annual lending increase by 86% to €5.6 billion. With more than 330 000 investors from 63 countries, the company now takes up about 45% of investing in the loans market in Europe and has already funded €5.6 billion in total aggregated loans.

The importance of alternative investments, it seems, will only continue to rise. After gaining the momentum and doubling their share of global money flows between 2003 and 2013, alternatives are set to grow even more as data by Preqin suggests that nearly 84% of investors will allocate more funds to alternative investments in the next few years. With the added uncertainty of the pandemic, the capability to diversify portfolios and move beyond the value of cash or the stock market might prove to be crucial, while signs of inflation may push for higher yield investments, including “store of value” assets.

 

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