Alternative Investments for Non-Accredited Clients

Although the SEC has limited the access that non-accredited investors have to certain investment types, there are still several Alternative Investment classes that are available to those with more modest amounts to invest.  Some of these investments fall into the classification of "publicly-offered/non-publicly traded."  These investments typically give up some amount of liquidity in exchange for lower volatility and the potential for steadier returns.  Other investments are available through publicly-traded mutual funds, but are considered "alternative" because they do something other than simply buy stocks.  Veripax tends to use some combination of the investments described below for a majority of the portfolios we manage.

Equipment Leasing FundsWalMartTruck2


Funds that earn their return through equipment leases and financing of business-critical equipment fall into a category we refer to as "Secured Income."  They are income-oriented investments that secure their income stream with tangible assets that can be reclaimed if a company fails to meet its contractual obligations.  A good example would be a fund that leases trailers to Wal-Mart or railcars to Union Pacific.  These funds tend to have a defined duration (typically 5-9 years), pay steady dividends for the life of the fund, and return your capital at the end.  They aren't conducive for getting rich quick, buy they can lower the volatility of a portfolio and generate steady, boring returns.

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Credit FundsManagement2

Investment companies that provide financing to small and mid-size companies have been around for a long time, but additional regulations and compliance requirements have caused banks to drastically scale back the business financing they provide.  This has created a great opportunity for investors.  Veripax uses Credit Funds that target the highest quality corporate debt; primarily senior secured loans.  A fund with senior secured loans is in a higher position than other debt holders, such as bond holders, meaning that the fund has first claim to company assets if the business gets into trouble.  Another benefit is that loans made to small businesses often come with warrants (i.e. options for pre-IPO companies), which creates the possibility of additional return beyond just the yield from high-interest loans.

Credit Funds provide financing for business activities such as acquisitions, expansion, and short-term operating capital.  Because many of the loans are floating-rate, these funds can provide an excellent hedge against the possibility of rising interest rates.

Apartment REITsApartment

 

Real Estate Investment Trusts are income-oriented investments that buy real estate and pass along at least 90% of the income from rents and leases to shareholders.  If the price of the real estate holdings goes up during the life of the fund, shareholders participate in the price appreciation as well.  REITs will commonly focus on a specific class of real estate such as office buildings, hotels, hospitals, shopping malls, etc.

Out of the various forms of REITs, VFM prefers apartments.  The millennial generation is currently in or entering the prime age for apartment living (24-35) and will eventually be the largest population group.  This generation is changing the paradigm of home ownership due to the fact that they recently saw their parents' home values collapse, they change jobs an average of 5 times before age 30, they are increasingly preferring to live closer to city centers, and tend to highly value work/life balance.  These characteristics support the probability that there will be a sustained demand for affordable apartments.  The Apartment REITs that VFM uses follow a strategy of purchasing older apartment buildings typically built in the 80's and early 90's, renovating and modernizing them in order to boost rents, holding them for a period of time (typically 3-5 years), and selling them.

Apartments tend to be an effective hedge against inflation due to the ability to adjust rents every 12 months.