Outside the Box

Thinking Outside the Box!

“Alternative” Investing

As referenced on the National Bureau of Economic Research, alternative vehicles in private capital can be seen as investing outside the box1.

Alternative investments may be structurally diverse in one or more crucial ways from often utilized stocks, bonds, or cash.  As you are likely aware, most “traditional” investments, such as the ones you may have in your portfolios, are publicly available to any investor.  This accessibility may not be true for alternative investments.

Alternative investments which are available to retail investors are typically through broker/dealers, financial advisors, or registered investment advisors (RIAs).  A majority of Regulation D alternative investments are sold directly by issuers; primarily to institutions2. In many cases, you as a retail investor, must meet net worth or income requirements to be able to invest and be willing to hold the investment for a specific period.  That’s why most of these products are described as “illiquid.”

A primary attraction of alternative investments is what’s known as the “illiquidity premium.”  That’s the potential for higher returns in exchange for less liquidity.  In addition, historically, their returns have a modest correlation to the return on traditional investments as measured by a relevant benchmark, such as the S&P 500 index for large-company stocks3.  

For some, another attraction may rest in low market/index correlation. This occurs because the factors that influence an alternative investment’s price may differ from those that affect traditional investments.  Specifically, the changing dynamic of supply and demand impacts the daily price of a traded investment.  But while the value of non-traded investments may fluctuate for similar reasons, there’s a lack of daily trading on a secondary market to pressure these investments to correlate directly with their publicly traded equivalents. 

Thus, an Outside-the-Box investments may not ebb and flow with the rise and fall of markets/indexes!

To the general public, this widely overlooked class of funds currently inhabits a much less recognizable position than the more familiar stock and bond markets.  But to some Institutional Investors like hedge funds, large pensions, mutual funds, and endowments (such as Yales Endowment Fund), these unique and generally non-market-correlated instruments are a customary and welcomed portion of their portfolios3 .

There’s significant variety, just as there is among traditional investments, in how they generate returns and the levels of risk to which they expose you.

PUBLIC OR PRIVATE - Some alternative investments are publicly offered, but others are privately offered.

Privately offered investments are exempt from security registration (typically with the Securities Exchange Commission).  The financial reporting that’s required varies.  Yet, all investments, public or private, are subject to federal and state antifraud regulations.

We believe devoting a portion of a portfolio to these Outside-the-Box investments can provide needed diversity and help protect assets against market volatility.

At Silverlight Financial, we provide virtual lunch and learn meetings to educate federal employees with $1mm or more of investable assets, about Outside-the-Box Investing.  (These assets may include TSP accounts for Feds age 59 ½ or older).  During these meetings, we supply you with lunch delivered to you at your home or office.  The 20-30-minute conference is hosted by Silverlight Financial and instructed by leading representatives in the field.

Each meeting is limited to only ten federal employees at a time to provide greater attention to individual questions that may arise during the meeting.

To sign up for one of our upcoming events, email randy@slf.email to request your spot.

Please provide the following:

·       Your first and last name -

·       Age - 

·       State of residence - 

·       Email address - 

·       Phone number - 

·       Estimated investable assets -

Note: We cannot hold your spot without first receiving the requested information above.

1.       DOI 10.3386/w24941 https://www.nber.org/papers/w24941

2.       https://www.finra.org/rules-guidance/notices/23-08

3.       https://www.McKenzie Investments

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