This is one of the most popular options for our clients. More and more investors are shifting to alternatives to boost returns, generate income, provide diversification from traditional investments and achieve their goals. The alternative market may be utilized by large corporations, for example, to provide high limits of coverage over a large self-insured retention (SIR), or by smaller entities participating in a risk retention group (RRG) or group captive program. Note that the distinction between traditional and alternative markets tends to blur over time as many traditional insurers expand their offering of products to encompass alternative-type funding techniques and vice versa.
There are several reasons an investor or a portfolio manager is likely to consider adding alternative investments to the balance sheet. In some cases, money generated from an alternative investment might be subject to far more favourable tax treatment than that from a more traditional investment; e.g., if an investor or client has significant tax-loss carry forwards or tax credits that can be applied to a particular type of activity or source of income.
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While the list of alternative investments is extensive, some of the ones you might encounter in the real world include, but are not necessarily limited to, the following:
- Real estate and all of its many derivations,
- Master limited partnerships, which can own and operate everything from oil pipelines to capital-intensive theme parks
- Tax lien certificates
- Stock or membership units in a privately held business
- Commodities, including precious metals such as gold, silver, platinum, and palladium, as well as crude oil, natural gas, ethanol, etc…
- Venture capital
- Peer-to-peer lending
- Annuities
- Mineral rights
- Intellectual property such as copyrights, song rights, patents, and trademarks
- Privately underwritten mortgages
- Structured settlements
- Art and collectibles
- Private equity
- Wine
- Tax credit
- Hedge funds
- Equipment leasing