The future is in alternative investments

Now things are changing and small investors can have the best of both worlds they can have the yield benefits of alternative investments, short term investors with relatively small minimum amounts.

Investment graph (photo credit: INGIMAGE / ASAP)
Investment graph
(photo credit: INGIMAGE / ASAP)
The global financial scene is undergoing a period of very low interest rates with the central bank rates in most western countries close to zero and even below zero.
Consequently global investors are constantly on the lookout for alternative, unconventional investments which will generate much better yields than those currently afforded by bonds and bank deposits.
The same holds true in Israel. Investors and these include investment houses are all busily looking for as well as developing alternative investment tools.
This trend started with institutional investors, continued with what is termed “accredited investors” which in Israel means an investor with liquid assets of over NIS eight million or with an anual income of over NIS 1.6 million, it went on to include the “ family office” which is a family controlled investment group and now also encompasses conventional private investors. They all have one thing in common they are for relative high net investments.
These developments are a boon for the local investor because the development of these financial tools has allowed local private investors a wider range of investment options overseas. In the past these private investors invested in overseas stocks and bonds, overseas exchange traded notes (ETN) overseas trust funds etc. But since the current yield on these are meager the local private investors are on the look for the alternative kind, which in essence means investments not included in the above.
The main difference between alternative and non alternative investments is in their dependence on market trends.
Conventional investments are nearly totally influenced by financial market trends. The aim of the alternative investment is to neutralize market trends as much as possible.
Alternative investments include hedge funds, loan funds, real estate funds, venture capital funds and more.
This is a growing market and alternative investments are growing by leaps and bounds. A few years ago it amounted to a mere 4% of total global financial investments, in 2017 it jumped to 25%.
The philosophy behind alternative investments is simple, “when it rains you do not necessarily get wet”, and that is its main advantage. In an environment of low interest rates it is possible to get high yields. The disadvantage ,of alternative investments in that it is the domain of the institutional investor, it is a long term investment with very high minimum investment amounts.
Now things are changing and small investors can have the best of both worlds they can have the yield benefits of alternative investments, short term investors with relatively small minimum investment amounts. With these investment tools the minimum investment amount is $ 50,000 and the investment can be realized with an advance notice of three months, nine months after the initial investment.
Alternative investments in the consumer credit market
Within what are termed alternative investments, one of the fastest-growing segments are the P2P platforms. These platforms are open to whoever wants to borrow money and to whoever wants to loan money. It is a highly regulated market, where the credit ratings of the borrowers are published openly by the competent authorities, which consequently makes investing in syndicated consumer loans easy to evaluate. They offer a computerized platform by which individual lenders can find the most lucrative way to make use of their money.
In this way, small investors can give loans to private borrowers. These afford investors returns that are higher than other conventional financial investments such as bonds or bank deposits. The cost to the borrower is less than the cost of obtaining credit from banks or credit card companies.
We at Halman Aldubi realized the potential of the P2P as a means to increase yields to our clients. After researching the P2P potential for nearly two years, we set up a fund called Halman Aldubi P2P 1st Ltd. Partnership. The fund invests in US syndicated loans, primarily from American credit card companies through P2P platforms. We have NIS 177 million of investor money under management, which yields investors an annual 8%. I want to point out that Israelis are not allowed to participate in a P2P platform; they can only participate indirectly through a fund such as ours.
Consumer credits in the US are a vast and lucrative business, with an annual turnover of more than $4 trillion. It generates an annual interest income of $1 trillion.
In the US, P2P funds have a turnover of approximately $40 billion, which amounts to approximately 10% of all consumer credit in the US.
The writer is the CEO of Halman Aldubi Investment House