Liquid alternative investment
What is a liquid alternative investment?
A liquid alternative investment is a way of diversifying your portfolio using mutual-fund-style liquid securities like bonds and bank loans. The main selling point of a liquid alternative investment is its liquidity – it can be bought or sold on a daily basis.
Where have you heard about liquid alternative investments?
Often referred to as extensions of private hedge funds, liquid alternative investments have become increasingly popular since 2009. They can be anything from real estate and fine art to hedge funds and private equity – essentially, anything that isn't a long stock or bond.
What you need to know about liquid alternative investments.
Liquid alternative investments are touted as a way of diversifying your portfolio and protecting it against price declines in the underlying security. They're available through things like hedge funds and exchange-traded funds – vehicles that provide daily liquidity.
While hedge funds usually have 'lock-ups' that prevent them from being withdrawn more than once a quarter or annually, alternative liquid investments can be drawn out daily – putting them at risk of market volatility. An investor may be forced to sell their position in times of stress, leading to losses.