Kerns Capital Management, Inc.

Alternative investments are often considered by investors looking to enhance returns in flat or poorly performing equity and bond markets as well as to diversify their portfolios.

Alternative investments have many different risk profiles, asset classes and fund structures. While the potentially high returns may appear attractive, these types of assets can carry higher risk and/or volatility as well as illiquidity.

Investors should consider carefully before committing to alternative investments. Key considerations are:

Asset types

There are many asset types from regulated funds such as mutual funds, to more exotic cryptocurrency, real estate, commodities, private credit or lending funds.

Investment Manager

Look at the company’s track record as well as that of its portfolio managers.

Fee structure

Are the manager’s interests aligned with the investor’s? Typical mechanisms for ensuring this are either a highwater mark or a hurdle rate for the performance fee to ensure the investor gets their share of profits before the manager.

Fund structure

There are many elements here that investors should be mindful of, including whether the fund is open- or closed-ended, its domicile, if there are any restrictions on the type of investor, any tax implications.

Risk tolerance

Investors should assess their appetite for risk. Alternatives can be inherently riskier investments and, as with traditional investments, there is always a risk that the value of investments decreases.

Investment Objectives

Investor goals usually fall into the following categories: capital preservation, growth and income.

Liquidity requirements

Will you need to access the capital within a short timeframe, or are you happy to set it aside for a period of time that could be as little as one month to as much as five or more years?