New Horizon: Unearthing alternative investments in 2020s

NOT long ago a post on twitter sparked my interest. An extended family took part in a group investment. A real estate portfolio was being launched.

They had just bought their third property and one of the members stayed in one of the apartments —  in which they paid rent like a normal tenant. I thought immediately to match this up with the alternative agenda.

In a bid to restructure an African’s approach to long term investing, I opened myself up to the existence of unconventional value hidden in the crevices of some limited asset classes.

Alternative value can be the solution to sustainable long-term saving. Your money allocation can solve questions about securing stability, wellbeing and sustainability in your personal legacy.

Alternative investments range from real estate, commodities, collectibles, private equity and debt. Often, alternatives are promoted as an eccentric asset class that holds a vast amount of risk and a (let’s be real) confusing aspect of prolonged rise in value.

Like art, soccer jerseys or antique guns, it is thought that these investments are acquired by wealthy individuals and wrongfully viewed as bets. Many people cannot afford to make bets on their long-term savings.

When people vocalise their desire to work with a “tender”, they really are stating that being involved in projects and development is lucrative. Beyond the monetary gainsalternative are often accompanied by intangible, long-term benefits.

Owning property may benefit generations in the future and contribute to the creation of healthy familial structures. Having a part in the growth of private or SME business can benefit the employment prospects in that area. Providing debt to an organisation with promising prospects can boost the working capital and operations of a business.

Generally, it is no easy feat to individually raise enough money to make a meaningful contribution. However, let a group effort take the reins and stories like the family property portfolio can become common.

The same goes for institutional alternative investing. ESG investment products cemented their place on the global stage through the establishment of the COP27 agenda.

Environment itself is an alternative investment, quickly becoming mainstream. Its returns go beyond monetary value and are proposed to transcend generations due to its sustainability. Is that not what the essence of investing is? To Allocate capital with the hope that returns create a fruitful future beyond monetary gain.

Viability is the associated risk, thus deeming it a fad amongst some. The scope of financial science should reach beyond equity or fixed income; and the possibilities of how money can be allocated are beyond what is offered to retail investors today.

The risk

As Matt Brown, from CAIS US, said “many think that alternative investments are less or even more risky than the equity market. And that is wrong, yes they have risk, it is just different risk”.

We need to look beyond liquidity risk. Yes, a lot of the time the disadvantage of investing in alternatives is the long holding period. The real risks are borne from firm- or asset-specific factors. Alternative assets are often uncorrelated to market trends.

This is beyond beta, and can be evaluated and managed by researching the asset through different knowledge streams. The thin line between determining whether an investment is a fad or not is simply the aggregate sum of research. Like most investment theory, research eradicates a significant amount of uncertainty.

I would encourage a retail investor to speak to people in the industry, financial advisors and read about the topic. It is only after adequate due diligence has been undertaken that one should commit their savings to an investment.

Only after this will we realise that equity risk and alternative risk are almost comparable, if not less, in variety and severity.

For a more mature investor, alternative investments will provide a premium in its low correlation qualities and above average risk-adjusted returns. It is an exceptional asset class to include in one’s portfolio.

Group investment regulations

Usually winding legal regulations and unwritten tradition put people in a position to stay clear of investing alternatively. Quite frankly, we need to expand the areas in which our saved money can reach, and regulators need to work on that access.

The Zimbabwe Investment and Development Agency (Zida) Act Regulation stipulates the proceedings of investment in Zimbabwe. Currently, asset allocation utilising pension funds is not the main source of income for alternative investments. However, one could invest alternatively to boost retirement income.

Signing the Zida Act into lawin 2020 outlined regulation that encompassed special economic zones, investment and joint venture issues.

Public and private partnership units also make leeway for alternative investments. The cooperation of regulators will aid a meaningful shift to alternative investing.

Around Sub-Saharan Africa

In a separate bustling Sub-Saharan economy, Namibia boasts the benefits of institutional alternative investments.

The success of business in the economy aids economic growth, which in turn offers better value for one’s investments in the long run. Access to capital early on can benefit a private company exponentially in the future.

This train of thinking was recognised and implemented in the investment law in the Namibia. Its economy was increasingly supported by private factors of production.

Thus, ‘unlisted’ investments became mandatory for the institutional capital allocation of pension funds. This upgrade is facilitated through the use of special purpose vehicles (SPVs) that manage and invest in unlisted companies.

Unlisted investment managers work to ensure regulations, due diligence and standards are maintained. It sounds so good; it should be normal! But it is not, again the management of different risks requires concerted attention and care.

The benefits we expect to see from Namibia’s adoption in its revised regulation 29 mandate is a refinement in due diligence and operation of these unlisted companies and growth in the risk adjusted returns for institutional and retail investors.

A sterling case in point in the Namibian market is 20Twenty, a private company that provides alternative ways of investment for housing finance. Rather than bank mortgage loans being the main investment of a pension funds capital, an employee can finance a home loan through a specialist debenture listed instrument.

With alternative investments bringing about returns in more than one dimension, this company mingles the best of both worlds in terms of sustainable returns.

These are inflation linked investment returns that beat Namibian money market returns and offer affordable housing solutions for Namibians. This is bound to impact pension fund members and their dependents.

Platforms for savings

We can kick it up a notch with the way stokvels are managed. Beyond putting our cash in the bank, and thus engaging in the money market, our savings could work in other assets that are easy to understand yet provide satisfactory returns.

The private market is larger than the public market and offers lucrative investment opportunities. In South Africa, developments in local online platforms provide a way for one to invest in private companies. This is a step forward for increasing the access of Alternative investments to the South African public. A mature avenue is AltX, the South African alternative markets exchange.  As technological solutions upgrade and investment is broadened for the public, alternative investing is bound to become easier and more equitable.

Exchanges that are suited for the population can make alternatives easier to understand for Zimbabweans. Imagine, daringly, putting your savings towards the local tomato project in your neighbourhood or the start-up started by your high school friend. There are many possibilities when investment becomes more dynamic.

As the 2020s continue to move along in its fashion — one that has exhibited unprecedented events, I would encourage you to explore alternative methods of improving the quality and returns of your long-term savings.

Dzinotyiwei is an independent contributor. These weekly New Horizon articles,   published in the  Zimbabwe Independent, are coordinated by Lovemore Kadenge,  an independent consultant, managing consultant of Zawale Consultants (Pvt) Ltd, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). —  [email protected] or mobile: +263 772 382 852

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