Alternative Investment Options — Catastrophe Bonds, Insurance, Luxury

IN the current climate of post-pandemic turmoil and a slew of other uncertainties, folks with the cash are wondering what to put their money in.

Banks have been failing, so maybe not there. Companies are folding, so perhaps not in the stock market. Geo-political uncertainties are making things tough and you never know which country may offend another and leave you stuck.

Alternatives may provide solace since it’s wide, varied and not under the controlling thumb of the system. That may mean you don’t enjoy the “protection” of the system,  but it does allow those with interests beyond the traditional stocks, bonds and cash formula to find niches in which to play.

With the formula shifting towards a more alternative scenario, the WED WEB CHAT — Investing? Think Of Alternatives! draws upon the experience of the authors of the recently released book Getting Started In Alternative Investments (Wiley).

Matthew Dearth is the Managing Director of Silvercrest Asset Management, an independent advisory and financial services firm. His 30 years of experience in the business also benefits students at the Lee Kong Chian School of Business, Singapore Management University, where he has been adjunct faculty (Finance) since 2016.

Ku Swee Yong, the Director of International Property Advisor has authored 6 books on the real estate market. This is his first collaboration.

The discussion runs through an array of topics, ranging from the rise of alternative investments like hedge funds, private debt, real estate, structured products, commodities and collectibles to catastrophe bonds and job prospects in this industry.

Here are highlights from the discussion. The full discussion is at the foot of the article.

What Are Alternative Investments?

They are not stocks, bonds or cash.

Anything else qualifies.

Traditional alternatives include real estate, venture capital, private debt, structured products.

Then the fun stuff includes virtual land in the metaverse, small loans, catastrophe bonds, life settlement funds, impact investment, digital assets and collectibles.

The 50-30-20 Split

Alternative strategies is a growing trend which is shifting portfolios from a 60/40 stocks/bonds to a 50/30/20 stocks/bonds/alternatives scenario.

In some instances it is a cowboy town, like in the crypto market.

Catastrophe Bonds: How Do They Work?

Insurance companies also need insurance.

Insurance companies started issuing bonds with a shorter duration of 3-5 years. Payment is conditional on what happens during the life of the bond. If a catastrophe  condition is triggered, then some of the principal is used to help the insurance company.

Do you want to bet against the weather in this climate change world?

Risky Alternatives?

How risky is it to get into alternative investments?

In traditional investing, there is protection offered by the system. They are not foolproof, based on recent bankruptcies and failed banks.

In alternatives, there is no systemic protection. You have to be willing to push your money to work hard.

Alternative Investments Here To Stay?

The 60/40 stocks/bonds ratio has worked for over 40 years.

But not since 2022, reckons Matthew Dearth. Over a longer period, diversification into alternatives can prove beneficial.

The 50/30/20 stocks/bonds/alternatives is becoming a preferred option.

Even within real estate there is diversification.

Prospects In The Alternative Space

More people who understand alternative investments need to join this industry, reckons Ku Swee Yong. 

Given the lack of knowledge in Asia, there is a need to improve in this area of the service.

While younger people are open to different types of investing — cryptos, NFTs, streetwear, handbags — there are fewer jobs in newer alternative firms, so it will be hard to land a job. 

How Does Something Become Alternative?

No definitive answer to this question. 

Anything scarce, something that has intrinsic value or an emotional connection could become a collectible. 

From limited edition pens to wines, vintage cars and much more, it could be valuable. 

But while you have the objects, can you find the other side of the trade?

Watch the full discussion of WED WEB CHAT — Investing? Think Of Alternatives! below.

Watch our previous wedwebchats:

If you have a topic that is of interest, or have someone who would make a good panellist with a thought-provoking perspective on a subject, please email with your details and a short summary.

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