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Alternative investments (gold, private equity, private debt, property, etc) are in high demand today, especially among high-net-worth (HNW) investors. One recent survey found that over three-quarters (76%) of British HNW investors are now targeting an allocation of more than 10% of their portfolios to these assets. Wondering how to get some alternatives into a Stocks and Shares ISA? Here are three options to consider.
Gold
One of the main reasons investors are seeking exposure to alternatives today is diversification. With these investments, one can potentially create more balanced portfolios and lower overall risk.
There are many different asset classes that can help with diversification. However, one that has stood the test of time is gold.
Relative to stocks and bonds, it has very different drivers. For example, as a ‘safe-haven’ asset, it often does well when there are concerns about the stability of fiat currencies or government debt.
Gaining exposure to gold in a Stocks and Shares ISA is quite easy today. All one needs is an exchange-traded product such as the iShares Physical Gold ETC or the WisdomTree Physical Gold ETC.
These products aim to match the spot price of gold bullion. In other words, if gold prices rise/fall, this fund should rise/fall in value by roughly the same amount.
Property
Another good portfolio diversifier can be property. Like gold, it often behaves differently to stocks and bonds.
One of the easiest ways to gain exposure here is via real estate investment trusts (REITs). These are companies that own property portfolios.
It’s worth noting via REITs, it’s possible to invest in all kinds of property. Some options include offices, warehouses, hospitals, shopping centres, and data centres.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Private equity
It’s not just diversification that investors are seeking when they invest in alternatives, they’re also looking for return potential. And one area here that is hot is private equity (ownership interest in companies that aren’t publicly traded).
Now, to gain access to private equity, one normally has to be willing to invest a lot of money (sometimes £10m or more). But there are ways around this.
One way is to invest in listed private equity managers. These firms raise money from investors and then deploy this capital into businesses that have significant growth potential.
If their investments are successful, they take a cut of the profits. It’s a lucrative business model that can generate strong returns for shareholders over the long term.
One company in this space that I believe is worth checking out (I recently bought some shares myself) is Pollen Street (LSE: POLN). It’s a small UK alternatives manager that offers both private equity and private debt solutions.
I think its private equity portfolio looks quite interesting. Today, the firm is invested in a range of innovative companies in industries such as electronic payments, wealth, tech-enabled services, and lending.
An example of a company it has invested in is OrderYOYO. This is a leading provider of payments-enabled ecommerce solutions to the European restaurant sector that is used by more than 10,000 restaurants today.
Of course, companies like Pollen have their risks. They may make bad investments, or face challenging financial conditions where they can’t sell their portfolio holdings.
I think considering a little bit of exposure to this area of the market could pay off in the long run though. In the years ahead, I expect this industry to boom.
