Inflation uncertainty has risen sharply worldwide since the onset of the COVID-19 pandemic, a situation that worsened in 2021 with increased demand and a tightening supply of goods and services. In 2022, the war in Ukraine further boosted inflation, making it difficult for investors to make decisions.
In such a period, alternative assets could be a tool to obtain greater diversification, decrease volatility and obtain better portfolio returns. All this without the need to go to the stock market.
According to Blackrock, there are two main types of alternative investments. The first consists of vehicles that invest in non-traditional assets, such as real estate and private equity. The second involves strategies that invest in traditional assets through non-traditional methods, such as short selling and leverage.
The alternative asset industry is on a growing trend. Hence, portfolio managers see it as a pillar of the modern investment landscape, supported by assets under management (or AUM) being at record levels, accompanied by investor interest.
According to Prequin, from 2015 to the end of 2021, assets under management (AUM) across all alternative asset classes increased at a CAGR of 10.7%. At the end of 2015, AUM stood at US$7.23 tn, rising to US$13.32 tn by the end of 2021, and we expect AUM growth to accelerate to 11.7% and reach US$23 tn in 2026.
For Forbes, 2023 promises that alternative investments will finally gain a daily place within investors seeking broader diversification portfolios.
In 2023, portfolio managers are targeting a more significant allocation in alternative assets due to their low correlation to the secondary market, which could mitigate inflation-induced volatility and potential recession and boost returns more than stocks and dividends alone.
How to distribute alternative assets effectively?
Initially, alternative investments were exclusive to experienced accredited investors. However, tools provided through asset securitization programs allow the distribution of alternative investment strategies quickly, efficiently, and simply.
By securitizing these alternative assets, an ETP (Exchange Traded Product) type investment vehicle is structured and issued, converting any underlying asset into a listed and “Euroclearable” security, which facilitates reaching a more extensive investor base, simplifying subscriptions and broadening distribution.
Repackaging an alternative asset into an ETP currently represents one of the most successful solutions for launching and growing private investment funds, real estate funds, and hedge funds of various sizes. Leading real estate fund managers such as Participant Capital, Black Salmon, and Driftwood Capital use these investment vehicles, or ETPs, to raise international capital for alternative investments.
Main advantages of ETPs for distributing alternative assets
Any alternative asset fund manager can benefit from this option to increase the distribution of their investment strategies. In addition, this type of investment vehicle allows you to customize your strategy thanks to its flexibility: it can be applied to a wide variety of financial assets. A “Eurocleable” financial security is put into circulation, providing the investment vehicle with the appropriate infrastructure to obtain standardization, market transparency, and international reach.
In summary, the advantages offered by an ETP include the following:
- Set up an Irish special-purpose vehicle (SPV) for exclusive use by real estate projects, hedge funds, or any private fund.
- Offer equity and debt-based investment instruments through a Euroclear listed security.
- Increase distribution to a broader investor base.
- Price dissemination through Bloomberg and other world-leading brands such as Reuters and Six Financial.
- Facilitate access to global private banking, financial advisors, and broker-dealers through their investment platforms and custodians.
Companies such as FlexFunds, based in Miami and with an international presence in Latin America and Europe, offer specialized solutions in structuring and launching ETPs through its asset securitization program.
For more information about FlexFunds’ solutions, contact us at info@flexfunds.com or visit www.flexfunds.com
Emilio Veiga Gil, Executive Vice President, FlexFunds 
Por Gabriela Huerta
Por Beatriz Zúñiga