By Dela AGBO
Alternative investments refer to asset classes that fall outside traditional categories like stocks, bonds, and cash. These assets provide investors with unique opportunities to diversify their portfolios, reduce risks, and potentially enhance returns.
Unlike traditional investments, alternative assets often exhibit lower correlation to public investment markets, making them attractive for hedging against market volatility.
Types of Alternative Investment Assets
Alternative investments come in various forms, each with distinct characteristics and benefits:
- Private Equity: Investments in private companies, including venture capital and buyouts, offering potential for high returns over the long term.
- Real Estate Investment Trusts (REITs): Companies that own, operate, or finance income-generating real estate, providing investors with exposure to property markets without direct ownership of the properties.
- Real Estate: Physical properties or real estate funds that provide income through rental yields and capital appreciation of the property or assets in the fund.
- Commodities: Physical goods like gold, oil, and agricultural products, often used as inflation hedges.
- Hedge Funds: Actively managed funds employing diverse strategies such as long-short equity, arbitrage, and global macro investing strategies to earn higher returns.
- Infrastructure Investments: Projects in transportation, utilities, and energy that offer stable, long-term cash flows for the investors.
- Private Credit: Direct lending to businesses, including mezzanine financing and distressed debt investments.
- Cryptocurrencies & Digital Assets: Emerging assets like Bitcoin and blockchain-based tokens, known for their high volatility and speculative potential.
- Collectibles & Art: Tangible assets such as fine art, rare wines, and classic cars, valued for their scarcity and historical significance.
It is very important to understand that not all these various types of the alternative assets are licensed or permitted to trade in Ghana.
Benefits of Adding Alternative Assets to Your Portfolio
Alternative investment assets are under value by Ghanaian investors, and many do not know the benefits of it. By including alternative investments in a well-balanced portfolio can provide numerous advantages:
- Diversification: Reduces overall portfolio risk by spreading investments across different asset classes.
- Potential for Higher Returns: Many alternative assets offer higher long-term returns compared to traditional stocks and bonds.
- Lower Market Correlation: Provides stability during economic downturns by mitigating the impact of stock market fluctuations.
- Inflation Hedge: Assets like real estate and commodities often preserve value during inflationary periods.
- Access to Private Market Opportunities: Investments in private equity and credit offer exposure to growth-stage businesses that are not available in public markets.
NPRA’s Revised Investment Guidelines for Pension Funds in Ghana
The National Pensions Regulatory Authority (NPRA) in Ghana has recently updated its investment guidelines, allowing pension funds to invest up to 25% of their AUM in SEC-approved alternative assets. Also, SEC has licensed some 3 private equity companies in Ghana – there are Oasis Capital, Mirepa and Injaro. This policy shift opens up new avenues for pension fund managers to explore higher-yielding investments while maintaining regulatory compliance.
How Fund Managers Are Taking Advantage of the Updated Guidelines
Ghanaian fund managers are increasingly looking for attractive alternative investments to optimize portfolio returns and manage risk more effectively. There are several strategies to achieve success but just mention a few:
- Allocating Funds to Private Equity & Venture Capital: Supporting local businesses and startups with high growth potential.
- Investing in Real Estate & REITs: Generating steady income through commercial properties and publicly traded REIT structures.
- Diversifying into Commodities & Hedge Funds: Utilizing non-traditional assets to navigate economic uncertainties.
- Exploring ESG & Impact Investments: Aligning portfolios with sustainable and socially responsible investment themes.
Examples of Alternative Assets in Ghana
In Ghana, alternative investment opportunities are growing across various sectors. Some notable examples include:
- Real Estate Investment Trusts (REITs): Structured investment vehicles that provide exposure to commercial and residential properties while ensuring liquidity and dividend payouts.
- Private Equity Transactions: Investments in high-growth companies such as fintech startups, energy infrastructure projects, and healthcare expansion initiatives.
- Agricultural Commodities: Investments in cocoa, cashew, and other export-driven agricultural products that provide stable returns.
- Renewable Energy Projects: Funding for solar and wind energy initiatives contributing to sustainable development in Ghana.
Contact EcoCapital Investment Management Limited
For investors and pension fund managers looking to understand and integrate alternative investments into their portfolios, EcoCapital Investment Management Limited offers expert guidance and tailored solutions. Contact us today for a detailed consultation on selecting the right alternative assets to enhance your investment strategy.
