Alternatives are very different from standard investments. In this article, we’re going to take apart an alternative asset and dissect it to see what makes it so different from standard investments.

If you’re not interested in the nitty-gritty and just want to take a look at the product’s performance, feel free to click here and go to the end of the analysis where we look at this particular offer’s summarized properties and its performance.

In this analysis, we’ll take a look at the returns, as well as the risks involved and how they compare to traditional investments

Before we go into the analysis - As is the case with all content regarding investments that you see online, be aware that this should not be considered to be advice. This is our analysis and only serves one purpose: Give you insight into the thought process behind working with alternative assets. This analysis is certainly not exhaustive, nor is it meant to be. Always ask a professional for advice before you take action.

Just like with most traditional investments, every forward-looking term mentioned in this analysis is not a promise but an expectation. However, in this case, the mechanics behind it are different than that of traditional investments. This is something to keep in mind.

At this point, it’s important to understand that the investment vehicle, being a loan note, is considerably different from most standard investments.

The loan note isn’t defined by its annualized return because there is no inherent variation.

This is in stark contrast between what you see with most standard investments where the investment’s variation is part of the mechanics of the product, be it a fund, a single stock, or a bond. Variation is always part of the game.

In this case, the annual 12% return is fixed. This also means that the return on investment is very predictable.

But this automatically brings us to the risks of the investment.

As with any investment, regardless of what it is, there's always some kind of risk involved. But there is one significant difference here.

When you buy a stock of a company, there’s never a guarantee that that company won’t significantly drop in value.

This is part and parcel of investing of course and investing in alternatives is nothing different. But to understand the risks here, you need to understand the investment vehicle's mechanics.

In this case, the Loan Note will be offered for an investment into property development in the UK.

There are of course more risks involved and we certainly can’t list all of them. But that would be true for any investment out there.The difference here, is the clarity. Alternatives thrive on it.

Much like the investment strategy of a fund is a key part of why investors invest, with alternatives, the business’ strategy is a main driver.

This, of course, gives companies in well-known industries (like real estate and property development) an edge.And in this case, the sectorial choice seems very balanced, and with purpose. Each sector has different characteristics and is driven by different factors of the economy.

Because of this need for clarity, you’ll find that there’s not a lot of secrecy in terms of what’s under development and what is coming. In this case, for example, one of those metrics mentioned is the fact that the total pipeline in residential only is estimated at a 1-billion-pound value.

When assessing an alternative investment, it’s important to look at each offer through a different lens. With traditional investments, you know what to expect when you’re investing in a certain type of investment. This is never a certainty with alternative assets.

But it’s precisely this unique aspect of alternatives that requires you to look at each one differently. Each one is different.

This is perhaps also the reason many find it difficult to get started with alternatives. It takes a significant amount of effort to weed through the ones that aren’t worth anything before you find something worth looking at.

Of course, it also means that the drivers behind growth are different. In some specific cases, you’ll find that the market has little to no impact on an offer.In the case of this particular product, you can find more details here.

Of course, this is with the assumption that the investment is retained until maturation and that all interest is retained in the investment as well.

When you apply the table above to a £100,000 investment, the difference is rather significant , with a 201,98% return on investment by the end of the seventh year.

To better illustrate the difference between the investment with and without the bonus structure, we've added two tables below. The first one shows the investment without the bonus, the second, with.

Of course, this is with the assumption that the investment is retained until maturation.

These are, of course projections, but unlike many standard investments, any potential variation is determined by the investment’s risks not the mechanics of the vehicle.

Where a fund has an inherent variation attached to it, for example, this does not.The interest rate is fixed, and unless something goes wrong, that doesn’t change.

As you know, anything can always go wrong and no investment is risk-free, but in this case, the fact that the risk isn’t defined by the variation but the rather other way around, is a nice prospect.

That means that a healthy investment will achieve its projected yield and that predicting a potential loss comes down to knowing and understanding a single entity rather than predicting the behavior of an inherently variable market.

Unlike traditional investments, this kind of predictability doesn’t come at a cost. Where normally a low variability means lower returns, this isn’t the case here.

This perfectly illustrates the essential difference between alternatives and traditional investments and also shows why entities like PWC recommend having part of your portfolio invested in alternatives. PWC (and many others) recommends 20%, but many are taking it far beyond this.

Important Regulatory Information

The Wayfinder Group B.V. and Oneryse are not authorised or regulated by the Financial Conduct Authority (FCA). The Wayfinder Group B.V. and Oneryse do not provide any financial or investment advice. We provide a referral to a regulated advisor who will offer appropriate advice, or to the company offering an investment who will determine your suitability for the investment prior to any offer being made. We strongly recommend that you seek appropriate professional advice before entering into any contract. The value of any investments can go down as well as up and you might not get back what you put in. You may have difficulty selling any investment at a reasonable price and in some circumstances it might be difficult to sell at any price. Do not invest unless you have carefully thought about whether you can afford it and whether it is right for you and if necessary consult with a professional adviser in accordance with the Financial Services and Markets Act 2000. These products are not regulated by the FCA or covered by the Financial Services Compensation Scheme and you will not have access to the financial ombudsman service. Information is provided as a guide only, is subject to change without prior notice and does not constitute an offer of investment. Some investments may be restricted to persons who are high net worth, sophisticated or professional investors or who take independent advice from an authorised independent financial advisor.

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