Alternatives
Difficulty intermediate
Overview
Alternative investments are assets beyond traditional stocks, bonds, and cash. They offer diversification and uncorrelated returns.
Alternative Asset Classes
| Asset |
Liquidity |
Min Investment |
Return Potential |
| Private Equity |
Very Low |
$1M+ |
High |
| Hedge Funds |
Low-Medium |
$100K+ |
Variable |
| Venture Capital |
Very Low |
$250K+ |
Very High |
| Private Credit |
Low |
$100K+ |
Moderate-High |
| Infrastructure |
Low |
$500K+ |
Moderate |
| Art/Collectibles |
Very Low |
Variable |
Variable |
| Farmland |
Very Low |
$100K+ |
Moderate |
| Cryptocurrency |
High |
Any |
Very High |
Hedge Fund Strategies
| Strategy |
Description |
Risk |
Correlation to Stocks |
| Long/Short Equity |
Long winners, short losers |
Medium |
Low |
| Global Macro |
Bet on macro trends |
Medium-High |
Low |
| Event-Driven |
Trade corporate events |
Medium |
Low |
| Relative Value |
Exploit pricing inefficiencies |
Low-Medium |
Very Low |
| Managed Futures |
Trend following on futures |
Medium |
Very Low |
| Market Neutral |
Delta-neutral positions |
Low |
Near zero |
Private Equity
Investment Process
1. Sourcing → Find investment opportunities
2. Due Diligence → Deep analysis of target
3. Acquisition → Buy controlling stake
4. Value Creation → Improve operations
5. Exit → Sell via IPO, trade sale, or recap
Key Metrics
| Metric |
Formula |
Target |
| IRR |
Internal rate of return |
> 20% |
| MOIC |
Multiple on invested capital |
> 2.5x |
| DPI |
Distributed to paid-in |
> 1.0x |
| TVPI |
Total value to paid-in |
> 1.5x |
Venture Capital
Stages
| Stage |
Description |
Check Size |
| Pre-Seed |
Idea stage |
$100K-500K |
| Seed |
Product development |
$500K-2M |
| Series A |
Product-market fit |
$5M-15M |
| Series B |
Scaling |
$15M-50M |
| Series C+ |
Late stage |
$50M+ |
Power Law Returns
VC returns follow power law:
- 50% of investments fail
- 30% return 1-3x
- 15% return 3-10x
- 5% return 10x+
The 5% drive fund-level returns
Infrastructure
Types
| Type |
Examples |
Yield |
| Transportation |
Toll roads, airports, ports |
6-10% |
| Utilities |
Water, electricity, gas |
5-8% |
| Digital |
Data centers, cell towers |
8-12% |
| Social |
Hospitals, schools |
4-7% |
Characteristics
Pros: Inflation-linked, long-duration, stable cash flows
Cons: Illiquid, regulatory risk, high capital requirements
Practical Guidelines
- Due Diligence — Critical for illiquid investments
- Lock-Up Periods — Capital may be tied up for years
- Fees — Alternatives often have high fee structures
- Diversification — True diversification benefit
- Access — Many alternatives limited to accredited investors
- Tax Complexity — K-1s, unrelated business income
- Valuation — Hard to value illiquid assets
Next Steps