My 3 Biggest Alternative Investments

seekingalpha05-21

Most investors invest nearly mostly in stocks and bonds.I am different in that I focus mainly on alternatives.Here are 3 of my biggest alternative investments. tadamichiJust a couple of decades ago,...

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These investments were reserved to the wealthiest and best-connected investors, and the rest of us were limited to regular stocks and bonds for the most part. But times have changed, and today it is easier than ever before to invest in alternative investments. Many of them are publicly listed. Some are also offered on crowdfunding platforms. And finally, there are also a lot more service providers to help you acquire these assets in the private market. As a result, portfolio allocations have started to shift in favor of alternative investments, but this is still just the beginning. According to Brookfield (BAM), we are likely to see the allocations towards alternatives to grow to 60% by the end of this decade:   Brookfield My portfolio is already that of 2030. I am very heavily invested in alternatives because I believe that they will allow me to:  Earn above-average returns With below-average risk Higher current income Better inflation protection And superior diversification  Here are three of my biggest alternative investments: Private Equity Most readers here on Seeking Alpha are heavily invested in public equity but hold very little exposure to private equity. It is unfortunate because private equity is often a lot more rewarding. You give up the benefit of liquidity in exchange for higher returns, and the trade-off is often well worth it for long-term-oriented investors. Even then, few individual investors are investing in private equity because they think that it is inaccessible to them. But that's not true. Today, anyone can participate in the returns of private equity funds by simply buying the stock of private equity investment firms. There are lots of them, but the biggest is Blackstone (BX), and here is its performance relative to the S&P 500 (SPY) since going public: Data by YChartsBlackstone is the manager of over $1 trillion worth of private equity funds, and it participates in their returns via asset management fees, incentive fees, and also co-investments of Blackstone itself. Therefore, by investing in the shares of Blackstone, you enjoy the best of both worlds: the liquidity of public equity and the returns of private equity. And to be clear, this is not a recommendation to buy Blackstone. I am simply using it as an example because it is the biggest and best-known private equity company, but there are many other smaller firms that have even better potential. One of my favorites today is Patria Investments (PAX), which is known as the \"Blackstone of Latin America\". It is still far smaller with just $50 billion of assets under management, but it is growing rapidly, and has a history of earning exceptional returns, and yet, it is today heavily discounted.   Patria InvestmentsI directly participate in these returns since Patria holds large co-investments in its own vehicles, and it also earns fees, which are dependent on the performance of its funds. If they perform as I expect, it will earn substantial profits and this will then also attract more investors into its funds, leading to even greater profits down the line. Today, I have large investments in three different private equity managers that are publicly listed, and I also hold investments in two private companies. All in all, they make up roughly 20% of my portfolio. Land \"Buy land, they're not making it anymore\" is a famous quote by Mark Twain. He understood that well-located tracts of land were strictly limited in supply, but ever-growing in demand, and that therefore, the simple laws of supply and demand would likely lead to rising land values over time. That land can take different forms. It can be land on the path of growth near a rapidly growing city. Back in 2016, I worked for a small private equity firm in Dallas, and we bought a big piece of land in Princeton, Texas, predicting that this land would someday in the near future become very valuable to developers as Dallas keeps on growing. We could also force value creation by preparing the site for future development by working with the city to change the zoning and get the necessary permits. In the end, our land investments worked out very well, with investors recouping all of their money and then some after just selling a piece of it.   Google mapsBut my favorite way to invest in land is through farmland. The reason why I love farmland is that it provides rental income while you patiently wait for long-term appreciation, and historically, it has been one of the most rewarding of all investments, easily beating stocks, bonds, gold (GLD), and even REITs (VNQ).   FarmTogether Note that the returns in this chart are unleveraged. If you had added even a modest amount of leverage, your annual returns would have jumped closer to 12-15%. That's very compelling coming from a very defensive investment. Food is our most basic necessity and its consumption will only grow over the long run as a result of population growth and the continued growth of the middle class, particularly in developing countries, which is leading to protein-heavier diets that require more farmland. It is recession-resistant. Its value is stable even during most black swans. It is a great inflation hedge. It provides income... And this explains why Warren Buffett, Michael Burry, Bill Gates, and other well-known investors are investing in this asset class.   FarmTogetherHistorically, it has been very hard for investors to gain exposure to farmland, but it is today easier than ever with crowdfunding platforms and REITs. I am personally gaining my exposure through FarmTogether, which is the leading farmland crowdfunding platform with ~$200m of assets under management, and also via the REIT Farmland Partners, which is a small-cap with great potential. Each has pros and cons, and they complete each other nicely in my opinion. Farmland represents about 10% of my portfolio today. Real Assets Finally, I am also heavily investing in other real assets. This includes lots of different things:  Gas pipelines Wind miles Solar farms Distribution centers Cell towers Fiber networks Ports Etc.  For the most part, these are essential infrastructure-like real assets that generate inflation-protected income. I get most of my exposure to these investments via publicly listed REITs and some of it also via private investments. I think that REITs are particularly opportunistic today because they often trade at large discounts relative to the fair market value of their assets. To give you an example: BSR REIT (OTCPK:BSRTF) is a REIT that owns apartment communities in Texas, and it is today priced at a 35% discount to its net asset value, which means that you would pay a much higher price if you bought these same assets in the private market.   BSR REIT I think that this is a historic opportunity because normally, it should be the opposite. REITs should be priced at a premium to reflect the added benefits of liquidity, diversification, and professional management, but today, they are heavily discounted because the surge in interest rates caused a market crash as investors sold REITs to reallocate to bonds. I am heavily buying the dips. Closing Note Most investors allocate the bulk of their portfolio to stocks and bonds, and then seek additional diversification by investing in alternatives. I do the opposite. I invest the bulk into alternatives, and I then diversify with regular stocks and bonds. I believe that this approach will lead to higher risk-adjusted returns over time.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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