*Apta Investment Group does not provide financial, legal, or tax advice. We recommend consulting with qualified advisors before making any investment decisions.
Doctors who want to grow their wealth have likely heard about alternative investments. But what are these other options, and should they be a part of your money plan?
Alternative investment funds have become popular with high-income professionals because of some of the unique things they have to offer–in particular, investments outside of stocks and bonds. For busy healthcare professionals who want both a steady income and long-term security, alternative investments may be a smart choice.
Understanding the benefits and risks of alternative investment funds is key. The best decisions are made when you fully understand the pros and cons of any investment strategy.
What are alternative investment funds?
To understand alternative investment funds, it’s important to understand alternative investments as a broad category. Put simply, these are investments that exclude three categories: capital stocks, bonds, and cash.
Common types of alternative investments include:
- Real estate funds
- Private equity funds
- Hedge funds
- Commodity funds
- Infrastructure funds
- Private credit funds
It’s not just that these funds acquire different kinds of assets (although that is part of it). Rather, these funds use a different way to invest. They focus on variety, income, and protection from inflation.
What about AIFs?
In the United States, the term “Alternative Investment Fund” (AIF) isn’t used very often. Other countries, like those in the European Union or India, use “AIF” as a specific legal term to describe certain types of investments. In the U.S., though, there isn’t one official label that covers all of these funds. Instead, people usually talk about specific kinds of investments, like hedge funds, private equity funds, venture capital funds, or real estate funds.
Even though the U.S. doesn’t use the term “AIF” very much, the idea behind it still exists. These types of funds usually pool money from a group of investors into one shared fund. That money is then managed by a professional fund manager. His or her job is to invest it into anything that isn’t regular stocks and bonds.
Depending on the type of fund, the manager might invest in private companies, real estate projects, or loans to businesses.
So while you might not hear the term “AIF” in the U.S., the structure is very common. It’s a way for people, often those with a lot of money or investing experience, to join together and invest in opportunities that would be harder to access on their own.
Unique traits of alternative investment funds
Most of these funds have certain traits:
- Longer time periods (often 5-10 years)
- Higher minimum investments
- Limited ability to sell during the investment period
- Professional management of all choices
- Potential for higher returns than regular investments
Types of alternative investment funds
Alternative investment funds pool money from investors and use it in non-traditional ways. These funds give busy professionals, including surgeons, access to investments that don’t follow the usual stock and bond markets.
Let’s look at four common types of alternative investment funds.
Real Estate Funds
Real estate funds invest in income-producing properties like apartments, offices, or medical buildings. Investors earn money from rent and potential profits when buildings are sold. These funds offer real estate exposure without the time or effort of owning property directly.
Private Equity Funds
Private equity funds buy private companies, improve them, and then sell them for a profit. They aim for high returns but require long-term investment. Doctors can invest without needing to manage the companies themselves. This is similar to how private equity real estate works
Hedge Funds
Hedge funds use advanced strategies to make money in both rising and falling markets. These might include short selling or using borrowed money. They add variety to an investment portfolio but often come with higher fees and more risk.
Private Credit Funds
Private credit funds lend money to companies that don’t use regular banks. Investors earn income through interest payments. This can offer steady returns and may be less volatile than stocks, especially when interest rates are high.
What are the benefits of alternative investment funds?
Why would someone pursue alternative investments in the first place? As a broader group of investments, is it worth it to look into these alternatives?
Alternative investments offer several potential advantages. These can be especially valuable for doctor investors. To make an informed decision about how to invest your money, it’s essential to understand these potential benefits.
Income Generation
Many of the doctors we work with at Apta Investment Group choose alternative investments because of the potential for better income generation. Stability is very important to doctors who spend so much time on the clock. They need their income to do more than just pay for the essentials and pad a retirement account.
Alternative investments have the potential to add this stability, especially when compared to dividend payments from stocks. Real estate rental income, for example, can provide a steady cash flow. Private credit interest payments and commodity lease arrangements can, too. These cash payments are consistent no matter what the market is doing.
Inflation Protection
Many alternative investments are based on real value, which increases along rising prices. For example, real estate properties tend to perform well during inflationary periods–even when regular bonds struggle.
Commodities also tend to maintain value during inflationary periods. Infrastructure investments do too. This provides a hedge against the erosion of purchasing power.
Tax Benefits
There are tax benefits to some alternative investment strategies. You may be eligible for real estate depreciation tax deductions, or you might qualify for oil and gas depletion allowances. Speak with a qualified tax professional who can explain how these benefits may affect your bottom line.
Professional Management
Alternative investment funds provide access to professional management expertise that individual investors probably don’t have. Fund managers handle all aspects of investment selection, including due diligence, portfolio management, and even property management for real estate.
This professional oversight can be invaluable for busy doctors, who rarely have the time to actively manage complex investment strategies.
What are the potential drawbacks of alternative investments?
Despite their potential benefits, alternative investments present several challenges. Doctors must carefully consider these potential obstacles. Before putting money into alternative investment funds, weigh these potential drawbacks against the benefits.
- Liquidity concerns: Alternative investments may not be quickly sellable if you face unexpected cash needs
- Higher fee structures: This includes management fees, performance fees, and potential transaction costs
- Complexity: You may need professional expertise to navigate the sophistication of some alternative investment strategies
- Limited transparency: It may be more difficult to access detailed information about your investments
- Concentration risk: High minimum investments may require doctors to commit large portions of their portfolios to an alternative strategy
How can you know if these funds are right for you?
Alternative investment funds are appropriate for doctors who meet certain criteria. The ideal candidate typically has:
- Stable, high income from their medical practice
- Adequate emergency reserves in liquid investments
- Long-term investment horizons (5+ years)
- Comfort with limited liquidity
- Understanding of associated risks and fees
Before investing in alternative funds, doctors should:
- Assess current portfolio variety needs
- Evaluate risk tolerance and liquidity requirements
- Consider investment timeline and goals
- Review fund manager track records and investment strategies
- Understand all fees and potential tax implications
Working with a professional investment fund manager
Selecting the right alternative investment fund manager is crucial for success. Experienced fund managers bring specialized knowledge and operational expertise that benefits you for the life of your investment period.
When evaluating fund managers, consider:
- Track record of performance across market cycles
- Experience in the specific alternative asset class
- Alignment of interests with investors
- Transparency in reporting and communication
- Fee structure competitiveness
Building a balanced investment strategy
Alternative investment funds should complement, not replace, your regular investments. A balanced approach might allocate 10-30% of a portfolio to alternative investments. Of course, this depends on individual circumstances and risk tolerance.
This allocation should be part of a comprehensive wealth protection strategy. This strategy includes:
- Emergency fund reserves
- Regular retirement account maximization
- Appropriate insurance coverage
- Tax-efficient investment planning
What are your next steps as a doctor investor?
If you’re a qualified investor, your high income and unique needs may lead you to explore alternative investment funds. After carefully considering the benefits and risks, your next steps may include:
- Consult with qualified financial advisors familiar with alternative investments
- Review your current portfolio allocation and goals
- Assess your liquidity needs and risk tolerance
- Research specific fund managers and investment strategies
Partner with Apta Investment Group for real estate investments
At Apta Investment Group, we specialize in providing real estate investment opportunities. These are designed specifically for busy medical professionals. Founded by Dr. Vasu Kakarlapudi, an ENT surgeon, we know the joys and difficulties of practicing medicine. We also know how challenging it can be to build long-term wealth.
We use a co-investment model, investing alongside our doctor partners. With over 20 years of experience, we handle all property management and investment oversight. We help busy medical professionals benefit from real estate ownership without a burdensome time commitment.
Are you ready to explore the ways that alternative real estate investments can strengthen your wealth-building strategy? Contact Apta Investment Group to learn about investment opportunities.