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


velocityshares daily inverse vixrealized yield calculatorexcel formula expdifference between variance and volatilitythe black-scholes formulahow to determine the strike price of an optionlognormal calculatorsharpe ratio portfolioexplain kurtosisinverse vixrelative standard deviation calculatorvelocityshares daily inverse vix short term etnvariance formula for ungrouped datadjia calculationformula for percent deviationproshare ultrastock market breadthrsi algorithmthinkorswim thinkbackvariance and standard deviation in financeotm optionsvariance on calculatoroptions rhostandard deviation finance calculatorblack scholes price calculatoradvantages and disadvantages portfolio managementultra vix etfoption notional valuevaluing a call optioneasy calculation mean median modecalculate the sample variancesum of squared deviations calculatorcalculating percentiles from mean and standard deviationetf correlation calculatorvix historicalhow to calculate the median in excelsell straddlejpmorganstockdetermining portfolio weightsn d1 calculatorcalculate sharpe ratio excelsample variance and standard deviationdescriptive statistics in excel 2007excel sample formulaslogarithm calculator step by stephistorical vixwacc calculation formulaexcel skewtheory of rational option pricingdescriptive stats in excelhedge arbitragespx marketghi stockcall option delta formuladefine backwardationhow to calculate 95 percentile in excelarbitrage fund meaningmacd crossover indicatorpercentile coefficient of kurtosisvxx etf fact sheetmacd formulaexponential moving average algorithmvar calculation excelbackground notepadsampling calculator excelaverage deviation formulaleveraged inverse vix etfexponential function in excelswiss currency etfdefine bearishedgar 13f filingsdelta of option formulaaverage inventory cost formulahedge funds definition with examplesvxx etfnorm.s.dist excelmarket oversoldsharpe measuresec 13f filings