We have evolved in response to the modern complexities and issues you confront, becoming more diverse, technology-driven, and collaborative in order to better meet your needs. Through careful consideration of your specific business issues, our tax and legal network of professionals are able to provide you with targeted approaches and data-driven insights. We do this by collaborating with a diverse range of tax and legal specialists and service areas from around the world, and we frequently draw on the experience and knowledge of colleagues in other areas of the organization, such as advisory services.
Even the most experienced asset managers face difficulties due to the constantly shifting nature of the alternative investment tax environment. Because of our team’s extensive tax knowledge, we can manage and organize complex transactions. Real estate, private equity, infrastructure, and hedge funds are just a few of the asset classes for which Gamburg CPA provides broad advisory services including tax planning.
Alternative investments, despite their name, have become a more mainstream component of the investment industry during the past decade, despite their relatively new status as a category. Although the majority of investors are familiar with alternative investments as an asset class, there is still a lot of misunderstanding surrounding this diverse collection of investment kinds.
Even though there is no official, comprehensive list of alternative investments, the common thread among them is that they are not included in the standard public stock and fixed income markets. An overview of the key types of alternative investments and the many functions that they can play in a portfolio is provided in this section. We also discuss some of the most significant risks and misconceptions related to alternative investments, as well as Gamburg CPA’s strategy to incorporate them into clients’ portfolios.
What are the major types of alternative investments?
Alternative investments are made up of a wide range of assets and investing strategies that are not traditional. Some of the most frequently used alternates are as follows:
- Investments in privately held enterprises that generate consistent cash flows are made possible by private equity funds (PEFs), through Special Purposes Vehicles (SPVs). Private equity managers may specialize in a particular industry, such as manufacturing or healthcare services, and they frequently use leverage (such as the utilization of private loans, as explained below) to increase profits on their investments.
- Commercial and residential real estate: Real estate is a vast category in and of itself, and can include investment in office buildings, apartment buildings, industrial facilities, retail space, and other types of property in various locations of the country or throughout the world. In addition to an income component – which is generated from contractual rent payments tied to tenant leases – there is also a real asset component, which is tied to the value of the underlying property or properties. Real estate investment returns are divided into two categories: income and real assets.
- Hedge funds: This is a large and diversified category that includes hedge funds as well as other investment vehicles. Among the strategies that hedge fund managers may employ to produce returns or decrease risk include merger arbitrage, long/short equity positions, event-driven equity positions, global macroeconomics, and volatility trading.
- Private credit: This category includes debt investments that have been arranged or created privately and are not traded on public marketplaces. The interest rate on private debt instruments is often a variable rate, which means that they are less sensitive to swings in interest rates than most public debt instruments are. Private credit offers the leverage that enables private equity funds to acquire the companies that are part of their portfolio.
- Commodities: Managed by a commodities trading advisor, commodities strategies involve the purchase and sale of futures contracts on a variety of commodities, such as gold, oil, wheat, and other precious metals.
- Venture capital: These funds invest in early-stage companies, particularly in fields such as technology or healthcare, by acquiring minority stock shares in them. Despite the fact that moon-shot successes are legendary, failures are nevertheless prevalent.
- The term “real assets” refers to loans for physical assets such as forestry and farms. However, this category can potentially cover infrastructure lending as well.
- Liquid alternatives: These are non-traditional investing methods in which the underlying securities are traded on public stock exchanges or are otherwise easily marketable, as opposed to mutual funds or other types of mutual funds. The strategies pursued by liquid alternatives (also known as “marketable alternatives”) are comparable to those pursued by hedge funds, including long/short equity and event-driven equity, but they are offered in more liquid vehicles, such as mutual funds and exchange-traded funds (ETFs).
What is Gamburg CPA’s approach to investing in alternatives?
Since our firm does not have securities or financial planning licenses, we do not offer investment advice. We can refer you to professionals that handle those investments for additional information. We handle a lot of clients that invest in alternative vehicles, and we do the tax planning and consulting regarding the taxability and filings for those investments.
We can help create tax-efficient structures for alternative investments, and legally reduce your tax bill, whenever possible. Alternative investments are becoming more and more common, so it is important to work with the right CPA firm that knows the taxation laws for those investments.