Alternative Investments Accessibility: Are Hedge Funds Only for the Rich?

Alternative Assets Are Not Available to Everybody

Alternative investments are very diverse. You can choose from various styles of hedge funds, private equity funds, real estate, commodity investing vehicles, or even more exotic assets like a tropical forest or a highway bridge. Nevertheless, if you only have a few thousand dollars to invest, the scale of alternative investment choices will be much narrower for you. There are two main reasons:

Risk Management and Minimum Investment Limits

Some alternative assets require a big initial investment. You need at least tens of thousands of dollars to buy property directly. Hedge funds or private equity funds often have official minimum initial investment limits (e.g. one million dollars). Even when you have such amount to invest, it wouldn’t be wise to put all eggs in one basket – for a portfolio of 8 such hedge funds, you need at least 8 million in cash.

Legal Restrictions and Qualified Investors

Alternative investments are not unregulated (as some people might think). Hedge funds or private equity funds are subject to various rules and restrictions. They can only market and sell investments to qualified or sophisticated investors. Being sophisticated is mostly defined as having net worth exceeding a specified amount (e.g. a million dollars). However we might question this simplification, the law is always right.

Everybody Can Invest in Commodities

As one exception from the restricted accessibility of alternative assets, commodity investments are available to anybody. Exposure to commodities is easy to build using various types of vehicles, especially:

They all have one thing in common: they all trade publicly on exchanges and some of them are fairly liquid. For example, corn futures are among the oldest and most heavily traded futures contracts. ETFs on oil (USO) or gold (GLD) are among the most liquid exchange traded funds.

Yes, commodity investing is extremely easy and it also seems to be extremely heavily promoted and popular in the last years (only time will show to what extent the commodity boom is justified by the alarming macroeconomic and social developments).

Making Alternative Investments Accessible to Small Investors

The trend in the last years has been towards making the other alternative asset classes accessible to retail investors as well. Financial companies are motivated by additional profits and over time they find solutions to enable the small investor on board too. Now there are funds of hedge funds, which give you exposure to multiple hedge funds with as little as USD 10,000. You can invest in real estate indirectly via publicly traded REITs (real estate investment trusts).

The trend of alternative investments becoming more widely available is one of the examples where the so much criticized Wall Street’s greed is useful to the small investor. If you don’t have the million dollars and you really do want to invest in hedge funds or private equity, there are some ways.

Related pages

macd emaoversold overboughtsample variance formula statisticss&p 500 vixblack scholes formulasprice weighted indexcovered call calculator excelterm structure of implied volatilityfutures vs options differencestandard deviation in excel 2007s&p inverse etfthe complete guide to option pricing formulascalculating averages in excelblack scholes exampleexcel formulas statisticsexcel formulas minusdefine squaringcalculate historical volatilityleptokurtic graphyahoo historical datafx formula in excelbullish put spreadleptokurtic platykurticdelta for put optionblack scholes templatexiv vixcboe holidaysvolatility etfssell put option graphcalculate annual rate of return in exceloption straddle strategycost of debt formula wacctheta call optionfutures contract multiplieroption profit loss calculatorcalculate stdevannualization calculatormarket value weighted index formulawacc market valuesample variance formulasdef of standard deviationwhat does kurtosis meanstock straddlemean average deviation calculatorinstrict valueotm putstock price volatility calculatorsem formula in excelstandard deviation from mean calculatordelta hedge optionswaac formulasharpe calculationexcel formulas for calculationdividend formula financedescriptive statistics calculatorhow to calculate delta of an optionrho optionapple stock price graphvix term structure cboecalculating sample varianceyahoo finance vixstandard deviation of monthly returnsintrinsic value of a call option formulastd deviation and variancecalculating sample meankohlhagenvix options tradinghedge fund overviewhow to calculate excel formulaswhats a good sharpe ratioblack scholes delta calculatorhow to create equations in excelubs e-tracs