WHAT’S THE RISK?

Alternative Investments are often considered to be more speculative and riskier than traditional asset classes, and it is for those reasons that certain advisers choose to stay away or prematurely condemn individual schemes with no real justification, other than by pointing to a handful that went wrong years ago.

The early millennium saw Alternatives become popular and that surging popularity saw lots of different opportunities find their way to the market. Many of the products of that era were developed by inexperienced manufacturers, who for the first time were bringing their sophisticated and complex ideas to retail customers. The lure of high returns to investors, and big remuneration packages to those who marketed them was a recipe for disaster.

Peel back the layers and take a closer look at their poorly thought out designs, which often had a lack of attention to detail, and used theories and formulas that were neither tried nor tested, and its no wonder that many of them buckled under stress – the biggest stress test of all coming came in the shape of the Global Financial Crisis (GFC) in 2008.

Ten years on from the GFC and we are all a lot wiser, smarter and experienced. The same can be said for the product manufacturers themselves. The structures and opportunities that exist today still carry similar inherent risks, but the lessons learnt, along with prudence and due diligence make the arena a safer one to explore. When you overlay that with a commitment to transparency as well as compliance and regulatory regimes that continue to tighten, then it all leads to an environment which is more established and safer than ever before. It is for those reasons that BCGA believe that investors are right to consider Alternatives and that each should be viewed on its individual merits rather than frowned upon simply because it carries the Alternatives badge.