Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
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Risk Summary

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

Don't put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
  • These new shares could have additional rights that your shares don't have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

You are unlikely to be protected if something goes wrong

  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.
The benefits of alternative investments for UK based investors
Insights
Alternative Investments
Venture Capital
Private Equity
Real Estate
Alyssa Peterson
· 4 min read
· Updated on

The Benefits of Alternative Investments for Experienced UK Investors

In the ever-evolving landscape of investing, diversification remains a cornerstone principle. Experienced investors, particularly sophisticated investors and high net-worth individuals (HNWI) understand this well.

Yet, many continue to rely heavily on traditional investment vehicles like stocks and bonds. While these assets have their place, alternative investments present compelling opportunities to enhance portfolio performance and achieve more robust financial outcomes.

Alternative investments, encompassing venture capital, private equity, real estate, and more, offer avenues to diversify beyond the limitations of traditional markets.

This guide aims to highlight the advantages of alternative investments and how they can fit into your overall wealth management strategy.

Whether you're a seasoned investor or a high-net-worth individual looking to explore new frontiers, this guide is designed for you.

Join us as we delve into the world of alternative investments and uncover how they can help you reach your financial goals and build your wealth with impact.

 

Understanding Alternative Investments

Alternative investments represent a broad category of asset classes outside of traditional investments, such as stocks, bonds, and cash. These investments can be either tangible or intangible assets and can take the form of direct or indirect investments.

Common examples include:

  • Venture Capital
  • Private Equity
  • Real Estate
  • Commodities
  • Hedge Funds
  • Art and Collectables

What Sets Alternative Investments Apart

Alternative investments are unique in several ways, offering potential benefits not typically found in traditional markets. One of the most significant differences is their low correlation with traditional market assets. This means that the performance of alternative investments does not necessarily mirror that of stocks and bonds, providing a buffer against market volatility and downturns.

The Role of Alternative Investments in Diversification

Diversification is a risk management strategy that involves spreading investments across various asset classes to mitigate risk. Alternative investments play a crucial role in this strategy. By incorporating alternative investments into your portfolio, you can reduce overall risk and enhance potential returns, creating a more balanced and resilient investment strategy over the long term.

Key Types of Alternative Investments

There are several key types of alternative investments, each offering unique benefits and risks. Among the most prominent are private equity, real estate, and venture capital.

Private Equity Explained

Private equity involves investing in private companies with the goal of improving their value over time through strategic management and operational enhancements. Investors buy a stake in a company, often providing capital for growth, restructuring, or other initiatives aimed at increasing profitability and market value. This type of investment can offer high returns, but it also requires a long-term commitment and an appetite for risk.

Real Estate as a Stable Asset

Real estate is a tangible asset that offers the potential for both income and capital appreciation. Income is typically generated from rental payments, while appreciation occurs as property values increase over time. Real estate can also serve as a hedge against inflation, as property values and rental income often rise with inflation, protecting the purchasing power of your investment.

Venture Capital: Fueling Innovation

Venture capital involves investing in startups and early-stage companies with high growth potential. This high-risk, high-reward investment aims to help these companies grow and eventually go public or be acquired. Successful venture capital investments can offer significant returns, making this an attractive option for investors willing to take on greater risk for the potential of substantial rewards.

 

Advantages of Alternative Investments

Alternative investments offer several advantages that can make them a valuable addition to an experienced investor’s portfolio. These advantages include higher potential returns, diversification benefits, and unique tax incentives.

Higher Potential Returns with Illiquidity Premium

One of the key advantages of alternative investments is the potential for higher returns due to the illiquidity premium. This premium compensates investors for the lack of liquidity, as alternative investments often require a longer holding period.

By committing to these investments for an extended time, investors can potentially achieve higher returns compared to more liquid investments.

Tax Benefits and Inflation Hedging

Certain alternative investments provide tax benefits. For instance, real estate investments can offer tax deductions for depreciation, and investments in UK-based early-stage private companies can provide access to lucrative tax incentives through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

Additionally, tangible assets like real estate can serve as a hedge against inflation, maintaining or even increasing in value as inflation rises.

Non-Correlation with Traditional Markets

Alternative investments often exhibit low correlation with traditional market assets, meaning their performance is not closely tied to that of stocks and bonds. This non-correlation can reduce portfolio risk and provide opportunities for positive returns even when traditional markets are underperforming.

By incorporating assets with different performance drivers, investors can achieve more stable and diversified portfolios.

 

Risks and Considerations

While alternative investments offer numerous benefits, they also come with unique risks that must be carefully considered. Understanding these risks is crucial for making informed investment decisions.

Understanding the Unique Risks

Each type of alternative investment carries its own specific risks. Private equity investments can be influenced by company-specific issues, real estate investments can be affected by local market conditions, and venture capital investments carry the risk of startup failure.

By understanding these risks, investors can better navigate the alternative investment landscape.

The Importance of Due Diligence

Due diligence is essential when investing in alternative assets. This process involves thorough research and analysis before committing capital to any investment.

Read More: Alternative Investments Due Diligence Checklist

Due diligence helps investors understand the potential risks and returns and identify any red flags that might indicate future problems. Investors who conduct diligent research are more likely to achieve successful investment outcomes.

 

Conclusion: Integrating Alternative Investments into Your Portfolio

Alternative investments can be a valuable addition to an experienced investor's portfolio, offering unique benefits such as higher potential returns and diversification.#

However, these investments also come with specific risks that require careful consideration. By conducting thorough due diligence and strategically incorporating alternative assets, investors can achieve a more balanced and resilient portfolio.

For UK-based sophisticated investors and high net worth individuals, alternative investments offer an opportunity to diversify beyond traditional assets, take advantage of unique tax incentives, and potentially enhance overall portfolio performance.

With careful planning and a deep understanding of the associated risks and rewards, alternative investments can play a crucial role in achieving your long-term financial goals.
Driving Growth.
Creating Value.
Delivering Impact.

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Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.