Do you have a taste for a more off-the-wall option when it comes to asset management? Alternative investments are a type of asset that can be anything aside from the traditional securities classes (bonds, stocks and cash).
Alternative investments: the hipsters of asset management?
What sorts of things might this involve? Well, we could be talking physical, tangible items such as artwork, wine, precious metals and stones, real estate (land and property) energy, or financial instruments like derivatives. Alternative investments include hedge funds too.
If the right decisions are made, alternative investments have the potential to provide higher returns on investment, though liquidity can be lower (this means they may not be as easily sold on/converted into cash with little or no loss in the value of the asset).
Roles in alternative investments…
The professionals in alternative investments mostly work for either investment banks or specialist asset management/investment firms. Analysts and traders will often report to the portfolio manager, whose job it is to manage portfolios of assets on behalf of their clients.
The portfolio manager will liaise with the client regularly to keep them updated with progress, and usually make the final decisions on where and how to invest, and how to diversify the portfolio in order to minimise risk. (Diversification means to invest in different ratios of different assets within the portfolio to mitigate risk of overall losses. Think not putting the eggs into one basket…). A portfolio manager role is at the top of the career chain in this field.
At more junior or associate levels, market analysts will usually specialise in a particular type of alternative investment or a particular market, such as hedge funds, private equity, commodities or currencies. There are a number of typical responsibilities analysts in alternative investments will hold: They might carry out in-depth research into these areas, source new investment opportunities; or due diligence tasks (the research and preparation duties that form a crucial part of the initial stages of an investment opportunity). Mathematical skills are essential for the modelling of expected returns on investment (how much profit an investment could lead to). They might also prepare and make progress presentations and reports to more senior colleagues, current clients and potential new clients. A way with words as well as top commercial knowledge and analytical skills is therefore also rather important!
Traders and brokers at investment banks or brokerage firms can also specialist in alternative investments. Traders will execute (carry out) the trades on behalf of a client, or the bank itself if they’re on the proprietary desk. Brokers will be both be approached by their clients to make investments on their behalf, and will seek out potential new alternative investment opportunities to pitch to clients/potential new clients, taking a commission for every trade they make. Up-to-date commercial awareness and in-depth understanding of the financial markets, as well as the guts to stick out a high pressure environment and create effective strategies is characteristic of these types of roles. Brokers also have to be highly tenacious, as they generate their own client network. Commissions and bonuses can be very high if they play their cards right!
Technical experts will use their expertise to provide cutting edge software and applications to facilitate the front office functions. The majority of trading is now done over electronic platforms, and various highly complex technologies and statistical modelling is used to price assets and try to predict the markets. As such, investment banks and investment firms look for top calibre technical graduates for these types of roles, which can prove to be very lucrative.
Risk managers are also crucial in alternative investments. Portfolio managers will have to possess certain skills in risk management, supplemented by the specialist guidance from risk managers. An aptitude for mathematics and statistics is vital in this area of the field.