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11 December 2012

Alternative investments: 2012 review

This is a series of articles about the personal alternative investments markets available to the professional corporate venturer, looking beyond our readers’ day jobs at how they manage their time and wealth using the same skills of insight, trend analysis and managing risk they bring to their professional careers.

Author: Marianne Abib-Pech, venture capitalist and writer

Another year nearly over and what a rich and fascinating year. New scandals further tainted the reputation and somewhat endangered the very existence of financial services as we know them, while elections in a noticeable number of significant economic players, such as the US and China, have forced some to reflecton the emergence of a multipolar world.

Through the year, I have explored the world of alternative investments as an innovative way for corporate venturing managers to diversify, protect and even grow their own personal wealth, often using three angles – passion, returns and social justice.

What    have    I    learnt    in    the    past    year?

The world of alternative investments is as global as capital markets. Experts and collectors in different regions present a surprisingly common way of assessing their alternative investment portfolios.

The valuation and credit crisis that is currently unfolding everywhere also stretches to investment. More and more initiatives are geared not only to familiarising a wider audience with the notion of impact investment, but also to advertising why it is critical for the world at large.

Initiatives such as Madrid IE university launching a social investment forum this year, or LGT Venture Philanthropy hosting its “kitchen meeting” in January next year, have increased the call for change.

Getting back to the basics of value creation is even more fundamental in the field of alternative investment than for any other kind of investment.

Constrained supply and increasing demand is the simple yet complete equation, as it encompasses demographics, consumer behaviour and the macro-economy.

The equation also calls for developing an understanding of the ecosystem surrounding a selected investment to reach the most acceptable risk-reward balance.

This ecosystem criterion covers origin, traceability and rarity. But passion for the investment should be the main decider.

The unique quality of the investment will always be cherished by the investor and, for that reason alone, it will be considered a good investment.

As alternative investors acquire knowledge and go through a trial-and-error process, they should be able to build a solid portfolio and have higher chances of success.

What    comes    next?

Since 2008 and the credit crunch, the financial world has been transformed and many old, previously sacrosanct values questioned or set aside.The Global Peter Drucker Forum in Vienna, Austria, last month posed the question of “Capitalism 2.0”, challenging the notion of shareholder value having primacy and urging people to look for new models and new leaders.

What    does    it    mean    for    investors?

These questions and the aftermath of the credit crunch mean investors will be looking to put their money into things that will not lose their value. They are moving into more defensive investment strategies for legacy building and security.

They are looking for a new definitionof blue-chip investment, as the old ones – FTSE 100 equities and bonds – do not seem to offer this safety at a reasonable risk-reward level.

Investing in rarity is a potentially booming area because there are no boundaries. Marilyn Monroe’s “Happy birth-day Mr President” dress, the Château Margaux 1996 bottle of wine and the firstPanerai watch are individually unique but opportunities abound to find a niche in which to invest.

These niches, therefore, can be seen as the new blue chips – they will never lose their value while people invest because they like and appreciate them. So long live alternative, or lifestyle, investments. They are the future.

Next year, I will be analysing premium real estate, fashion, vintage cars and horses. Happy holiday season to you all.

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