Investment Articles

Genuine alternatives to financial investments are considered to be ‘real’ or ‘hard-asset’ investments. Immoveable property such as real estate, farmland and timber properties are considered to be viable alternatives to financial assets, and moveable property like gold bullion, fine wine and rare stamps are also considered to be genuine alternative investment assets.

The case for real-asset investing is compelling; those with sufficient expertise in order to identify good quality assets in high demand can generate substantial financial gains as the inherent value of their assets grows over time. But in almost all cases, specific expertise is required in order to identify, properly value, and measure the risk associated with niche assets like timber properties or fine wine, and a lack of credible asset analysis, along with a non-existent regulatory framework have made this area of investing very high risk for most investors, many of whom have been subject to mis-selling, misrepresentation, poor advice or outright fraud.

Investors acquire certain assets as they are unlikely to depreciate over time, and when demand for the asset or its produce increases so too does the inherent value of the asset itself. So properties that are finite in supply yet have an essential function such as agricultural land, and forestry investment properties, are likely to see values rise as the global population grows and developing nations become wealthy and demand more resources. Niche sectors like fine wine also benefit from increasing demand for finite assets. As only a certain volume of a particular vintage is ever produced, the value increases over time as existing stock is consumed, and more buyers come into the market demanding the best quality product. The same could be said for other collectibles like stamps, antiques or rare coins. The basic underlying strategy remains relatively static across most in real-asset investing; acquire useful or desirable tangible assets, of which supplies are limited and demand for which is rising.

Core to the success of any property or asset-based acquisition for investment purposes is due diligence. Investors must be assured of the value they are receiving for the money they invest, and of the risks they face as an owner of such an asset. Often times such investment projects are structured so as to raise sufficient capital not just for an asset purchase, but also for its improvement and/or future operation or management, and in these cases it is paramount that an investor has ultimate confidence in the knowledge and ability of all of the counterparties which have an on-going responsibility to the good and proper management of the asset.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

Alternative Investing has become a trend in recent years. The traditional market cannot compete with the returns available, which is why investors turn to alternative projects to make their money work harder for them.

A quick look at the investments available on the traditional market shows that the only way in which investors are making returns is to enter into high risk projects over a long period of time. The returns being seen are also reasonably meagre. With the rising cost of living and inflation, people cannot afford to lose money on investments. Now more than ever people need their money working harder for them, generating income and creating high returns. The stock market is underperforming and the traditional market faces issues of volatility and cannot deliver rates that are so needed.

Over ten years the S&P 500 is up just over 10 %, or about 1 % a year. On a five year basis it’s down about 18 %. Similarly the Australian Super this year has made a loss of 2%, and investors are told that they should be thankful that this was the only loss made.

The instability of the traditional market has smart investors turning away. Turning to other projects to diversify their portfolio and have their money working harder for them. A direction in which many smart investors are turning is towards the alternative investment market.

Due to the fact that alternative investments have low market correlation, they are safely distanced from the traditional investments and have therefore been far outperforming anything available on the investment market.

The most commonly approached Alternative Investment is that of property. However the Australian property market has taken a downturn lately. House prices are dropping and we are not seeing the stability that we have become accustomed to over previous years. Meanwhile other Alternative Investments are creating returns that are unsurpassed.

The Carbon Market for example is set to become the fastest growing market in the world. As a tradable commodity Carbon Credits are going to be the most sought after tangible asset. The introduction of the Carbon Tax in Australia on the 1st July 2012 has created an opportunity for Carbon Credits to be created and then traded on the open market; creating massive profits for those who own them. Capital Carbon Credits is an alternative project which creates these Carbon Credits. With the ‘Top 500′ emitters being forced to purchase Carbon Credits, this is a commodity market which is in high demand yet very low supply.

Another great example of an alternative commodity which is in high demand but in low supply is actually the commodity of food. 3.6 billion people in the world rely on rice as a staple of their diet, creating a yearly demand of 437 million tonnes of rice. Currently the world can only create 381 million tonnes a year, leaving a vast shortfall. Agri Capital is a project which is creating the biggest commercial harvest in West Africa, a harvest which will create 9000 tonnes of rice per year. Winning ‘Best Alternative Product of the Year 2011′ and with projected returns of 15 % per harvest with the last harvest creating 16.2%; this is an alternative investment which is outperforming anything on the traditional market.

A further reason that people are turning to Alternative Investments is due to the ethical side of the investments available. In recent years a lot of the big profits being made have been through mining and oil companies. Companies which pollute our atmosphere; destroying our environment.

The Capital Carbon Credits is creating clean air for Australia. Growing trees in the Gippsland of Victoria the project is taking pollutions out of the atmosphere and offsetting the damage that the ‘Top 500′ emitters are creating.

The Agri Capital Investment has an enormous social impact on the area in which it operates. Whilst generating rice, it also creates jobs, healthcare, education and local markets for the community in which it is based. Also Agri Capital set aside 60 metric tonnes of rice per year to be given back to the community at no charge. Feeding the poor and improving the lives of those in the community surrounding the project.

These investment opportunities are not only greatly surpassing any of the returns that people are managing to get on the traditional market but they are also low risk. With guaranteed exit plans and insurance in place for varying projects; Alternative Investments deliver high returns in an ethical project whilst safeguarding your initial investment.

For a free report on an ethical, safe and highly lucrative rice market which is available for a limited time visit http://www.capitalalternatives.co/australia/

It is now a widely held belief that investing in stocks and other financial instruments in the traditional manner generates an investment return that is driven more by the latest piece of political rhetoric, or the most recent announcement of sovereign debt risk or unemployment figures from some far flung corner of the world, than by underlying company fundamentals like good management and a strong balance sheet. Aside from this inherent volatility, many investors also feel over-exposed to financial markets, especially those coming close to retirement that may have little time left to regain catastrophic losses in any one holding.

This shift in mind-set amongst investors has driven a huge growth in alternative investment management, with most financial institutions now offering investments that are organised and managed in such a way as to attempt to avoid volatility, or generate a return when markets fall, or some other such strategy.

Short Only
Short only funds bet on particular stocks losing value. Investors might buy into a short only fund if they felt particularly bearish (pessimistic) about the short term future of financial markets in general, and some may allocate capital to this strategy as a hedge against the impact of a general downturn.

Ultra-Short Bond Funds
This a type of investment fund that invests fixed-income bonds with very short-term maturities. Such a fund will usually invest in bonds with maturities of around 12 months. This strategy is designed to generate higher yields than traditional bond investing with less volatility.

Market Neutral
Market neutral is an alternative investment strategy designed to profit from growth and depreciation in the value of stocks. Whilst there is no finite technical definition for market neutral investing, for the most part, the overall strategy will involve taking long and short position in a stock (betting both for and against it) in order to maximise the return from making good stock selections and minimise the impact from broad market movements.

Absolute Return
The original name for hedge funds – absolute return investing involves a wide variety of alternative investment management techniques designed to capture financial gains during any and all market conditions. Absolute returns refer specifically to the return of the fund or investment over a given period of time i.e. the actual growth or depreciation. This differs from relative returns, which is a measure of investment returns when compared to similar investments or a sector.

Long / Short
A true mixed bag of investing, long short strategies involve taking long positions in one stock and betting against the value of another stock. In theory, as one sector or company makes a gain, there will be losses in competing sectors, and investment manager aim to identify such opportunities and capitalise on them. A broad example might be an investment manager who thinks oil prices will rise significantly based on some impending political or social crisis, so they might buy into oil company stocks and short stock of companies that rely heavily on oil as a key input in their business.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

During the past five years, the global economic meltdown has spurred a spate of reorganizations of the investment portfolios of major institutional investors, many of which are now allocating more capital to real-asset alternative investments in an effort to reduce exposure to volatile financial markets, generate superior investment returns, and underwrite the value of their portfolios with the capital value of niche, income-generating property assets including forestry investments and farmland investment properties that are unlikely to depreciate in the long term.

The logic is sensible, and the likes of Yale University Endowment and their Harvard counterparts have all entered into long-term farmland and forestry investments as part of an overall refocusing of their investment strategy. Historically, land, gold and gems of varying types have been the only store of wealth, it is only since the introduction of fiat currencies that investors have sought to build cash gains, rather than aiming to build a sizable portfolio of land, property or other physical assets. Now, many smaller investors are taking heed of the big boys’ new strategy, and investigating the potential benefits and risks associated with investing in commercial timber properties and agricultural land assets.

Both of these assets classes exhibit characteristics that hold particular appeal during times of economic turmoil. Not only have assets in both sectors outperformed the majority of traditional investment instruments, but also, investment returns are driven by factors and variables that bear little impact from turmoil and volatility in traditional equity markets. Trees continue to grow to valuable timber whatever the economic weather, and increasing demand for resources from China, India and other fast-growing emerging economic drives up the price of sustainably sourced commercial timber and demand outstrips supply.

Capital growth and revenue from farmland assets are also supported by increasing demand. More people simply require more food, and improving diets in emerging market economies require greater inputs of grains, water and other inputs including fertilizers and fuel. All these factors combine to drive up commodity prices (and farm income) on an annual basis, and a lack of suitable land in the face of growing demand also supports long terms capital values.

So, on paper both farmland and forestry investment assets offer a number of advantages to the investors, but there are also a number of asset specific risks that must be acknowledged and understood before venturing into this type of asset as part of a diversified portfolio. Here are some of the headline risks associated with agricultural property investing:

Sectoral Risks

Both farmland and forestry investments display risk-potential that is specific to owning and operating agricultural assets in general. Income is derived from the production and harvest of commodities, be it timber, biomass, energy crops, grains or livestock. Revenues streams can be volatile, with growers subject to prevailing market conditions at the time of harvest. A dip in prices may cause an entire years’ revenue to be wiped out. Energy prices also factor in, especially in relation to farmland. Higher oil and gas prices mean higher farm input prices, further squeezing profit margins.

In the case of forestry investments, value can be stored on the stump during periods of decreased timber demand (and deflated timber prices), as property owners simply leave their trees to grow larger and more valuable until market conditions dictate a sensible time to harvest and sell. There are of course a number of other risk-factors associated with investing in real assets in the agricultural sector, but the major sectoral considerations are volatility and immediate demand for produce.

Location Risks

It is written, and I personally believe, that the vast majority of demand for resources such as energy, timber, food and other commodities will come from fast-growing emerging market economies. China alone exhibits economic growth on such a scale as to dwarf that of developed economies. When 3 billion people drive a car, live in a timber and concrete house, and eat a western diet, then demand for energy and raw materials will reach a level hitherto unseen.

It stands to reason then, that agricultural assets located in regions close enough to, or even inside emerging market economies are best-positioned to participate in the supply chain, and offer enhanced returns for investors due to low asset prices and high demand for end products. Whilst emerging markets offer the best opportunity for superior investment returns, these locations also carry risks not associated with developed nations. The potential for expropriation of land and property by unfriendly governments attempting to win votes poses a very real risk, and investor should carefully investigate the security of title for international investors before committing funds.

Asset Specific Risks

This is where experience and expertise comes in. farms and forests are niche assets and require careful expert management in order to mitigate risk and maximize upside potential. Flood, drought, disease, pests and soil degradation may all affect the income potential (and therefore capital value) of agricultural property assets. Growing commercial timber takes skill, knowledge and experience, and running a successful farm requires the same. My advice? Only ever choose to invest in agriculturally productive properties if you are able to access and retain expert operational partners capable of managing specific assets in the region you wish to invest.

In summary, it could be said that investing in farmland, or timberlands, offers the investor the opportunity to generate non-correlated returns without dramatically altering the overall risk profile of a portfolio. But there are risks, and the risks to be considered are not necessarily the kind of risks that investors are used to acknowledging or assessing. So seek the advice of an experienced consultant with a track record of delivering successful projects, and make sure that you are capable of withstanding long-term illiquidity, as both farmland and forestry investment assets are long-term investments, and investors must consider that they will ride out the bad times along with the good, in the hope to retaining control of some of the world’s most essential, productive assets.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

Ask any experienced investor over the age of 50 what type of real-asset they wish they’d invested in when they were young, and the vast majority will most likely give one or more of two answers; gold and/or real-estate, and those who pay more of an interest in such matters might even whittle their selection down to niche agricultural real estate including farmland and timberlands. Why so then would anyone with 30 years of investing experience behind them, having seen rise and fall of many fads, bubbles, booms and busts, consider physical, tangible and useful assets in precisely the same light as the wealthy of centuries gone by, when value was literally only stored in land and precious items like gold and jewels?

OK, so put aside for a second that the recorded investment performance of farmland and forestry investments has outperformed the vast majority of traditional assets like equities for decades, it is now becoming ever-more apparent that the sensible investor, especially those who have been party to the consistent volatility in financial markets over the years, is choosing to acquire assets that retain a use and essential function, and where demand is growing and availability of suitable resources falling. These assets will always be in pretty high demand, as growing populations shift to a higher protein, more resource-intensive diet, and general population growth requires increased output of agricultural commodities for food and biofuel markets. It is likely then that these assets, especially those that produce essential food commodities will continue to grow in value over the long-term, and that the income derived from them also rises as competition in the grain markets intensifies at an international level.

Timber is a great example of an asset class which, if well-funded and expertly managed, continues to grow in size physically regardless of growth in financial markets or the economy at large. It is primarily this fact that makes forestry investments so popular amongst long-term investor like pension funds, university endoements and insurance companies. Demand for sustainable sourced timber is growing exponentially, and curbs on the illegal logging trade along with international legislation to protect natural forests will continue to push up the value of any timber grown, so not only does the asset grow bigger, it also grow more valuable per weighted measure, creating a double-pronged growth strategy to combat otherwise volatile market-linked portfolios.

However, it should be noted that there is no such thing as the perfect investment, and real-assets in niche markets carry very specific risks of which potential investor must make themselves aware. Education is key to wealth preservation, and whilst risk cannot be eliminated, it can be identified and in most cases mitigated through proper structuring and management of a property or investment. Investor are encouraged to seek advice of an experienced advisor able to demonstrate a track record of identifying and delivering successful project, and who is capable of providing the investor with up to date, credible and factual asset class analysis in order to properly acknowledge and understand the asset specific risks that may eventually impact the investment performance of the asset or project.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

Traditionally, investors have held a slim range of investment assets within their portfolios which have consisted primarily of stocks, bonds and cash, some more adventurous investors have even held physical gold and property. Now private investors are following the march of pension funds and university endowments; investing in a range of real asset alternative investments including niche real estate like commercial timber properties and agricultural land, in the hope that increasing demand for resources from emerging economies will drive both revenue from the sale of essential commodities (timber, food, biomass), and capital growth as suitable, productive assets become more scarce. Other investors, especially the wealthy, have also been investing in more esoteric alternatives like fine wine, rare stamps and a host of other tangible properties where demand will hopefully outstrip supply and generate growth.

There is of course a logical reasoning behind the allocating of capital to real assets investment alternatives; not least the fact that recent economic turmoil on a global scale hit portfolio values hard, and many investors coming to the end of their investing life feel that they may not have sufficient time to recoup losses, especially whilst markets remain so volatile and supported by central government policies like quantitative easing. These investors invariably want to acquire assets that are unlikely to depreciate overnight, and may benefit form the upside of exponential demand growth from China and India, where economic development is driving mass consumption of food, commodities, timber and energy on a scale that the world has never seen before.

There are a number of risks associated with these kinds of property-based alternative investments, with illiquidity and asset-specific risks taking centre stage, and investors should certainly not part with capital unless they fully understand and accept that risk-planning is quite different with such assets. Forestry investments are a great example. There is a range of direct forestry investments available for smaller investors wishing to invest directly in timber producing properties, but the vast majority have been improperly structured, and in most cases are designed to generate a profit from sales of plots to investors, rather than to generate income from timber harvesting. One such example I saw recently was offering small plots of land in an established forest in Brazil. Investors are invited to acquire leasehold to a small plot which is then managed to produce commercially viable timber at harvest. These kinds of schemes can work well; they allow forest property owners to raise capital from investors, without having to raise debt, which is difficult to service due to the long-term nature of forestry investments. So investor get to participate alongside the forest owner, and benefit from economies of scale in the on-going management of their plot alongside the rest of a property and other investors plots. This model means that investors tend to pay for the entire management of the plot up front, so they invariably pay more than the disposal value of the plot as they are also investing in the on-going management and infrastructure etc. In reality, this example was charging investors £100,000 for a 1 hectare plot of forest which, in my opinion, is a totally unjustifiable profit margin. I would expect to pay no more than $30,000 to $40,000 in total for the lifetime of owning a 1 hectare plot stocked with timber.

Conversely, I have also seen and worked with other examples that offer excellent value to the investor, and where the management teams have been able to demonstrate their experience of running an agribusiness; of operating successfully in the timber trade; and of having a track record of starting and building successful projects, companies and/or investments. I feel that a lot of people will lose a lot of money from investing in assets they don’t truly understand, and anyone considering taking the plunge into an area with which they are unfamiliar, should seek the advice of someone with experience of identifying, assessing and delivering successful investment projects within the sector of interest.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture, forestry and renewable energy sectors.

Recent economic turmoil, played out over the past 5 years, has caused many investors to questions the logic of holding all of their assets in stock, bonds and cash. Whilst market conditions are positive, and equity values rise, all is well. But recent history has demonstrated that years of capital gains can be reversed in a matter of days, or even hours. Large investors such as pension funds, and smaller investors saving for retirement, are now seeking to allocate a portion of their capital to alternative investment assets that retain a capital value throughout any prevailing economic climate, and, for the long-term investor, capture capital growth driven by a rising demand for essential and luxury assets in line with a growing global population and rising wealth in emerging market economies like China, India and Latin America.

Here are 3 investment alternatives that share a low or negative correlation with the performance of shares, and might, for many investors, offer a solution to the question of portfolio diversification and risk-management.

1. Gold investment

Gold has long been viewed as a safe, stable asset that provides insurance against general market volatility. When equity values fall, gold values rise as investors sell their shares and buy into a ’safe haven’ investment like gold. Thus, holding gold as part of a diversified portfolio creates growth when other assets lose value, effectively creating a balance and countermeasure to stock market exposure during a downturn market. Gold has also outperformed most other assets, gaining almost 30% per year for the past five years.

2. Forestry investments

Trees are becoming ever-more popular alternative investment assets. Well-managed commercial timber plantations derive financial returns from the biological growth of trees into valuable timber and other commodities which can be harvested for income. As trees continue to grow regardless of the economy, forestry investments in key regions where trees grow quickly, and where demand for timber is highest (read emerging markets), can produce returns of between 10% and 20% p.a. over a sustained investment period of 10 or 20 years. There are a number of unique risks associated with this alternative property investment, and Investors should partner with an advisor with a track record and experience of identifying, measuring and delivering successful forestry investment projects.

3. Farmland investments

Agricultural land is in worryingly short supply, and forms the basis of all agriculture and food production. Without enough suitable land to grow crops and raise livestock, demand for food outweighs supply and farmland values rise as the true value of the assets class becomes apparent. Those in control of food-producing land may in fact be in control of the world’s most valuable asset in 10 or 20 years’ time. As the global population has grown so quickly over the past 100 years, the amount of suitable arable land per person had halved, and changing diets in advancing economies require the input of more resources to grow food, creating a double-whammy of demand. Farmland investments therefore capture long-term capital growth driven by population growth and rising levels of wealth in emerging markets like China and India. There are a host of risks associated with agricultural land investment and again, investors should seek out the advice of a consultant with a track record and experience of identifying, measuring and delivering successful farmland investment projects.

In summary, all of these assets are likely to grow in value as demand continues to grow, whilst supplies remain fundamentally limited, and investors able to find a suitable entry into any of these alternative asset classes could generate superior investment returns, provided they are prepared to hold the asset over extended period of time and can tolerate the illiquidity associated with tangible, physical assets.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

The American economy seems to be picking up pace, with strong employment data bolstering confidence in a sustained recovery. And the housing market seems to be just about at the point of capitulation. So how as an investor do we make the most out of cheap houses, loosening credit and a growing workforce?

Let’s take a look at one strategy currently employed, that has the potential to generate a substantial return on investment, whilst creating a positive social impact. It’s called the Exit Strategy, and was developed by a joint UK/US team that have rolled out the program 18 months ago, and have since delivered 350 renovated homes to disadvantaged families who have been able to take actual ownership of their own home, with a mortgage on preferential terms.

The investment cycle is simple; US banks are keen to rid their balance sheets of foreclosed properties. Not only are the banks unable to prepare, renovate and market these properties, they also glut the bank’s balance sheet with toxic assets, making it harder for the bank to borrow, and therefore lend.

This unique situation allows an investor to acquire a property at a vastly reduced price to market value. Where properties are available through Realtors for around $80,000, similar properties in close proximity can be acquired AND renovated for $25,000. Most investors would then just rent the property to a low income family, creating a positive cash flow and long-term growth investment. But this strategy is different.

With this alternative investment strategy you simply sell the renovated home to a disadvantaged family. But how? Well, if you’re lucky enough to have secured downstream mortgage finance on fixed terms from a number of local banks prepared to lend to the new homeowner, then you’re on to a winner.

Effectively, if you buy, renovate the home for $25,000, then sell it for $50,000 (well below market value) to a family, with a mortgage provided on fixed terms from a local bank, and you can do all this within 30 days, then you can effectively achieve the following over a 90 day investment cycle:

Initial Investment: $25,000 (single property)
Sale Price: $50,000
Timeline (total): 30 days

Secondary Investment: $50,000 (two properties)
Sales Price: $100,000
Timeline (total): 60 days

Tertiary Investment: $100,000 (four properties)
Sales Price: $200,000
Timeline (total): 90 days

Total Profit: $175,000
Total Margin: 700%

To achieve this in reality, you need mortgage finance, you need access to foreclosed properties, you need a committed, employed renovations team capable of prepping a house within two weeks, and you need access to a market of families that want to get out of expensive rental schemes and back into home ownership, with equity.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions, with experience across residential, agricultural, forestry and renewable energy.

There is a great range of alternative investment assets to consider for those amongst us seeking to reduce their exposure to stock, bonds and cash, including a host of ‘real’ or ‘hard’ assets. For the investor seeking long-term gains in a stable, low-risk environment, tangible assets in short supply and high demand offer some exciting opportunities to hedge inflation, and capture capital growth driven by increasing demand from a growing global population and economic expansion in developing economies.

Gold bullion and coins such as sovereigns are perhaps the most common form of alternative investment held in an average portfolio. Gold has long been viewed by investors as portfolio insurance, sharing a negative correlation with the performance of equity markets. This is because investors sell stocks and buy gold when equity markets fall, or confidence in the markets or economy as a whole drops. This causes a great spike in demand for gold as investor pile into what is ultimately a finite resource. This causes gold prices to rise and therefore, the fall in equity values is offset by rising gold values within a portfolio. Gold should be viewed as a long term investment, and there are higher costs associated with buying and selling physical go0ld bullion, and a cost to store it securely too, so attempting to trade in and out and capture small price movements is inefficient, risky, and not at all how the asset class should be managed. Gold is an ideal pension investment, and one that investors can buy into over time, perhaps allocating a small amount per month to acquire more gold each month.

Gold has performed particularly well over the past 5 years, rising in value by around 25% per annum as global economic turmoil has resulted in a surge in demand amongst investors of all shapes and sizes. Many analysts predict that gold prices could continue their upward march, rising from around $1,600 per troy ounce, to as high as $3,000 or even $4,000. If gold were to continue to rise in value at 25%, then a $1,600 investment would be worth nearly $12,000 in ten years time, although this scenario is wholly unlikely.

Let’s assume a capital growth rate of 8% per annum average over ten years. If an investor spends just $1,600 per annum on gold each year, the resultant growth would result in the investor owning some $23,178 worth of gold, having invested $16,000 at a rate of $133/month (a profit of $7,178). An investment in a bank account yielding 3% at $133/month over ten years would result in a total pot of just $18,585 (a profit of $2,585). This shows that even with a rate of growth much lower than has been demonstrated in the past five years, investing in gold can provide investors of all shapes and sizes with investment alternatives worth considering.

It is important to note however, that these calculations do not factor in buying and selling costs, but as our theoretical investor won’t be selling, (and should even buy more is the prices falls at any point), and will only be buying once per annum, the impact of dealing fees and the buy/sell spread are minimised.

There are of course a many different alternative investments to consider, from fine wine to gold, through to forestry and farmland, and investors and Financial Advisors should seek the assistance of a consultant or advisor with specific experience of dealing in the asset class of interest.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in real assets and property-based transactions

In the face of continued economic uncertainty, and volatility in mainstream investment assets, many investors are looking further afield than stocks, bonds and cash in order to generate much needed income and growth. One only has to conduct a brief search on the internet to find a whole range of investment alternatives, from portfolios of fine wine, to the more traditional gold bullion and property. So where does the inexperienced investor, or indeed financial advisor, start when considering the prospect of adding alternative investment assets to a diversified portfolio?

Well, the first thing to consider in my opinion is the status of the investor him/herself. Should the subject even be thinking about alternatives? Do they have a large enough portfolio of investments to allocate 10 or 20 per cent of their capital to relatively illiquid assets? Could they be declared a ‘Sophisticated Investor’ or ‘High Net Worth Individual’ thus allowing them to consider a wider range of investment structures which may only be open to certain types of investor?

At this stage of the process (very early on) I would establish the status of the potential Client. A few direct questions will reveal whether the investor has the requisite experience to be certified as ‘Sophisticated’ or ‘High Net Worth’. This being the case, further enquiries into the specific requirements of the Client follow, with the aim of building a picture of the tolerances of the individual in terms of risk, illiquidity, investment horizon and capital adequacy. Here, we can also ascertain whether this Client is seeking income form their investments, or whether indeed they are seeking longer-term capital growth or perhaps even the tax advantages that may be associated with particular alternative investment assets.

If a Client happens not to fit the criteria of a ‘Sophisticated Investor’ or ‘High Net Worth Individual’, then it may be necessary to refer him or her to a Financial Advisor, who, after a comprehensive review of the Client’s financial position, will be able to ascertain whether or not the Client could tolerate the aforementioned risks and illiquidity often associated with real or non-financial assets, and what portion of their portfolio might be suitable for such assets.

Once we have a complete picture of what the Client may tolerate, and what they want to achieve, it is possible to start suggesting asset classes that may of interest. Taking into account requirements for income, attitude to risk and illiquidity, and investment horizon, we are able to disregard assets that will not fit well with the individual.

For the investor seeking capital growth and with no requirements for income, it might be suggested that fine wine or philatelic investment (such as rare stamps) might be an appropriate place to begin. Both assets derive capital growth form demand fundamentals and inherent rarity of the asset, are less reliant on the fundamentals of financial markets, and therefore fit comfortably with investors seeking physical assets that retain (and perhaps even gain) value throughout general market dips. Gold Bullion or Coins might also be another area of interest, providing ‘portfolio insurance’ during downturn markets. Other long-term growth assets are timber, agricultural land and real estate, some of which also generate a modest income.

Income seekers might look towards niche real estate assets, such as below market value property or agricultural properties where income is derived from rentals or the production of certain crops. There are opportunities to invest in established agro-forestry plantations, where investors acquire part of a working plantation which is in turn managed by the plantation owners to produce a variety of crops from bamboo to biofuels. Such opportunities can be risky, and potential investors and financial advisors might find value in consulting with an entity capable of properly assessing the risks and opportunities associated with such investments.

In summary, alternative investments might not be for everybody, but instead only for those investors capable of bearing the financial risk associated with physical assets. It must be noted that the vast majority of physical investment assets such as property or fine wine are not regulated, and so investors have no access to compensation schemes if things go wrong. But provided that the asset, location, sector and counterparty risks are properly identified and explained, experienced investors and those who have been in business for themselves, will be able to make common sense decisions as to what, if any, alternative investments might suit their portfolio.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.