Alternative Investments
Alternative investments are designed to provide an alternative to investment in traditional capital market instruments such us, shares, debentures, options, derivatives, ETFs and so forth. Hence, these are private equity investments not traded on the capital markets: hedge funds, infrastructure, overseas real estate and other diverse areas, such as consumer credit, pharma and FinTech.
Alternative investments are typically used to hedge risk and to increase the stability of the investment portfolio, due to the fact that unlike traditional investments (mainly shares and debentures), these are less sensitive to speculation, valuations and to supply/demand – and therefore, most importantly, are also less volatile. Due to the low correlation between alternative investments and investments in shares and debentures, it is clear why they are the preferred way to hedge a portfolio.
Low interest rates and market volatility push investors away from cash and debentures and towards risky assets, including alternative investments.
It is important to keep in mind that many alternative investments require investors to waive the liquidity of their investment and the flexibility of transferal from one investment to another. Therefore, it is of significant importance to work with professional investment managers experienced in this field, who can select investment strategies, investment durations and optimal investment targets with the right timing.
Alternative investments: Who are they for?
Most alternative investments lack liquidity and are considered long-term investments. Hence, they are most appropriate for investors for such durations, who wish to increase diversification in their investment portfolio, while increasing the chance of achieving higher returns and reducing risk. The entry threshold for these investments is not low, making them more appropriate for affluent investors. Investors in alternative investments should invest free funds, typically knowing that these would not be available to them during the investment term.
Advantages and disadvantages
Along with advantages, such as risk diversification, the chance of higher returns and optional periodic dividends from some investments, alternative investments may also have some disadvantages that should be considered. First, they may be associated with issues of negotiability and liquidity, which may make it hard to exit from such investments. Second, they are considered higher-risk investments, and are subject to strict regulatory and legal restrictions and may, in some cases, be subject to payment of a management fee to fund managers.
However, in periods of near-zero interest rate and capital market volatility, the advantages of alternative investments would seem to outweigh their disadvantages.
Alternative Investments with Meitav
Below is information about different types of alternative investments currently offered to investors at Meitav:
- Strategies and hedge funds
Funds designed to increase the likelihood of gain in the capital market, while hedging the portfolio during scenarios of decline. For example, Meitav Portfolio Management allows you to manage an individual investment portfolio using investment strategies, intended for qualified clients (with capital in excess of NIS 8.1 million or annual income in excess of NIS 1.215 million) and private IRA clients. The activity is primarily managed by an expert team of investment managers, based on hedge fund investment strategies. Investment managers strive to achieve positive returns over time, with low correlation to markets, by using diverse investment strategies, such as Long-Short, shares in Israel, participation in issuance during the institutional investor stage, Event Driven in shares, taking advantage of distress situations in debentures and so forth. - Real estate backed loans overseas
Funds that invest in real estate property overseas, focusing on regions or countries that may provide excess return to investors. Meitav offers two such funds: the Emerald fund and the Reigo fund.
Meitav's Reigo fund invests in short-term loans secured by a primary lien on properties in the USA, based on artificial intelligence.
Fund investment managers select loans for investment based on a combination of real estate investment experts and unique technology, based on artificial intelligence, to analyze each and every loan by weighting hundreds of information items, based on the performance of hundreds of thousands of similar loans in the past, to optimize the risk/reward ratio of the portfolio.
Reigo's artificial intelligence technology is an innovative platform based on AI, Big Data and advanced algorithms for forecasting the performance of property-backed loans, which allows for reducing the likelihood of a default, reducing the decision-making duration and allowing for increased diversification.
The Emerald fund, managed by Lotus Ireland, a Meitav Group company, is a fund investing in property-backed loans in Ireland.
The fund invests in loans secured by a first-ranked lien on properties (lots for construction, residential properties and rental properties), extended at relatively low LTV ratios and for short terms of up to 24 months.
The fund primarily specializes in core areas of Lotus' expertise throughout its years in operation.
- Extending loans for construction of residential homes – from the land stage through full assistance in the construction stage.
- Financing for rental properties, including land and properties for rapid improvement in major urban locations.
- The focus is on the Dublin metro area (primarily, but not exclusively). - Technology solutions for growing businesses
Investment in technology solutions that help companies and businesses. Meitav has established, jointly with high-tech entrepreneurs, the Liquidity Capital II fund, which offers a solution for tech companies in Israel and world-wide to finance growth by acquiring their future revenue streams.
Liquidity Capital has developed an algorithm used to forecast revenues of such companies over the short and medium term, with a high level of significance. Based on such forecasts, the fund acquires the companies' future revenues. The financing model, which combines gradual, controlled revenue acquisition with monthly underwriting and control, allows the fund to hedge its investment risk. - Structured products
A structured product / note is a debenture issued by a bank, whose performance is based on the performance of an underlying asset (share / stock index / currency / commodity) or multiple underlying assets. The purpose of such debentures is for the bank issuing the structured product to commit in advance to the payment terms, as set forth in the product prospectus. Similar to standard debentures, this obligation is valid provided that the issuer is not in default. Therefore, the quality and financial resilience of the issuing bank are key parameters for making a decision about investing in a structured product.
Why invest in structured products?
Structured products have a key advantage in that, provided that the issuer is not in default, they may provide relatively high certainty with regard to returns and/or to the risk associated with such investment, where terms and conditions for the product have been specified in advance. Another advantage lies in the ability to clearly and accurately describe the risk / reward profile and to adapt it for the investor's needs. Therefore, structured products may provide risk / reward ratios over traditional stock and bond investments, especially during periods of high uncertainty and low returns. - Investments in content
Home-made content has been blooming, as the world gradually emerges from the COVID-19 crisis, as evidenced by the high prices at which films and series are currently sold to Netflix, including Israeli ones. "Fauda", it would seem, was merely the start of this wave.
The New Legend fund from Meitav provides debt issues to producers of films and series, against a lien on their contracts with distributors, rights to content or taxation grants in various countries. New Legend and Meitav would identify for the fund relevant films and series for investment in the USA. Loans are extended for terms of up to 18 months. All this is designed so as to reduce the risk of deviations from budget that would not allow production of the film or series to be completed.
Alternative investment products are intended for qualified clients, as this term is defined in the Securities Act (except for Meitav hedging strategies as part of IRA).
The information provided in this article is merely general, summary information with regard to terms and conditions and to operations of the funds and other products, it is not binding and should not be relied upon in any way. Investment in funds and/or in other alternative products shall be made based on an individual offer and at the absolute sole discretion of the General Partners, in conformity with provisions of investment documents of the funds and/or other products, and exclusively pursuant to terms and conditions set forth therein, after the investor will have received them, will have considered them by themselves personally and without any reliance on the content of this website nor on managers of funds and/or other alternative products and representatives thereof, and will have signed all fund investment documents. The foregoing shall not constitute an alternative to tax advice, legal advice or investment advice provided by a duly licensed investment advisor which takes into consideration each person's individual information and needs. Each investor should independently assess all aspects of investment in the funds or other alternative products. Interest in the funds or other alternative products is not and shall not be offered to the public, and this information does not constitute a public offering of investment. The foregoing shall not be regarded as commitment by the fund manager to the terms and conditions set forth in the funds and/or other alternative products, to achieve excess returns nor to avoid loss.
