What implications does the development of alternative investments have for the future and how did the alternative market come to be?
What do a tulip, a whiskey bottle, a Super Mario 64 game, and a future real estate development have in common?
You would be right if you guessed from the article’s title that all of these are alternative investments. These are all alternative investment ideas now or in the past. Each item has rewarded savvy investors who dared risk their money on alternatives to stocks and bonds and non-traditional investments.
What implications does the development of alternative investments have for the future and how did this alternative market come to be?
When alternative investment first began
Any financial investment that does not include stocks, bonds, or instruments that are linked to cash is considered an alternative investment. A few alternative investments date back hundreds of years. Trading in commodities first appeared between 4500 and 4000 BC. These promises with time and date restrictions on delivery resemble modern futures contracts quite a bit.
Private art sales extend back to the Roman era, but the world’s oldest auction house, the Stockholm Auction House, opened its doors in 1674. During the 1600s, the trading of expensive Dutch tulips gave rise to one of the most well-known speculative bubbles in history. When trading was at its highest, bulbs might fetch up to six times the typical person’s yearly pay. Thomas Jefferson’s papers from as early as 1787 offer the earliest proof that wine premiums were paid for older vintages. Baseball cards are a must-discuss collectible if we’re talking about them. Although the “Golden Era” of baseball cards is thought to have begun in 1909, non-traditional tradeable known as cabinet cards were created in the middle of the 19th century.
The alternative investment vehicles are interesting, but more conventional and organized financial methods are younger. The Bessemer Trust, the first private family office, was established in 1907. The creation of the first hedge fund is attributed to Andrew Winslow Jones in 1940. The first private venture capital firms were established less than ten years later. Although real estate and land ownership have a long history in American society, the first U.S. REIT wasn’t established until 1960.
Rise to Prominence
The industry of alternative investments has grown in a multitude of ways. First, more investors and firms are getting involved than ever before. In 2020, a survey of high-net-worth individuals found that 87% were planning to maintain or increase their allocation in alternative assets over the next twelve months. The number of institutions invested in private equity in 2015 was 6,170; today, there are over 8,400 firms involved. Almost 1,800 fund managers hold private debt — over twice as many as just five years ago. Real-estate assets under management rose to a record $992 billion during the summer of 2019 — marking the fourth consecutive annual AUM increase for the industry.
In addition to the number of alternative investments, specific transactions in the alternative asset area are creating history every day. A sealed copy of The Legend of Zelda sold for $870,000 in July 2021, shattering the previous record for the most expensive video game ever sold. A sealed copy of Super Mario 64 sold for $1,560,000 two days later. The sale of Beeple’s Magnum Opus for $69.3 million earlier this year was also the third-highest auction price ever for a living artist. Don’t forget about classic cars either; earlier this year saw the sale of the costliest McLaren F1.
The Democratization Era
The general democratization of opportunity is what the future of alternative investments already looks like. By utilizing technology, investors can participate in assets they believe in without having to put up a lot of money up front. Royalties for sale can now be listed publicly on music royalty investment platforms like Royal Exchange, which were previously restricted to specific parties. You lack a wine storage, or you are concerned about the upkeep of your alcohol investment. Wine investments are purchased, held, and shipped by Vinovest. Through its brand-new platform WhiskeyVest, it is presently providing early access to new investment opportunities. And last, Republic, a fintech investing platform, has made private equity deals available to non-institutional investors.
Tokenization is a developing trend in the field of alternative investments. The process of tokenizing involves dividing a relatively big investment into manageable portions for smaller investors. Also referred to as fractionalization, this process allowed “14 Small Electric Chairs” by Andy Warhol to be legally split into digital tokens, with each token representing partial ownership in the artwork. Point guard for the Brooklyn Nets Spencer Dinwiddie tokenized his NBA contract, enabling him to cash out on his three-year deal up front and providing investors with a bond-backed investment in an NBA contract that would pay off over time. Red Swan, one of many commercial real estate markets, has a minimum investment requirement of $1,000. Investors can choose from a variety of real estate possibilities across the nation. Alternative investments used to be elite, but now everybody with a small amount of money may invest in a piece of something amazing.
Alternative investments’ prospects
Alternative investments have on the one hand, been around for generations. On the other hand, the 44th President of the United States, Barack Obama, took office just 17 days after the Bitcoin network was established. Every day, new non-traditional investments are developed by combining cutting-edge future applications with established traditional opportunities with a long history. It’s an exciting moment to be a part of this stage in the development of alternative investment, especially for the investor wishing to diversify their portfolio.