Alternative Funds


What are Alternative Funds

Despite unique risks and considerations, alternative investments can potentially be useful tools to improve the risk-return characteristics of an investment portfolio. They can potentially increase diversification and reduce volatility, given historically low correlations to more traditional investments; they can offer the potential for enhanced returns due to the wider investment opportunity set; and they can hedge certain portfolio exposures, thereby reducing concentration risk.

The question then becomes why are investors unwilling to include alternatives in their portfolios. Is it because they do not fully understand the benefits, risks, costs, and liquidity of the opportunities? While the answer is different for every investor, the principals of Breakwater Capital can help you determine if alternative investments may be right for you.

Qualities of Alternative Investments

  • Historically Lower Market Correlation
  • Typically Lower Volatility
  • Capital Appreciation Potential

Alternative investments have long been used to attempt to offset the constant ebbs and flows of the conventional market, and as a means of potentially hedging against stocks. This makes them worth considering as a tool to strive to insulate your portfolio against sudden dips onset by major incidents that cannot be controlled or predicted, aka Black Swan events. Taking risk out of investing is impossible, however we can help further diversify your investment portfolio by leveraging our many relationships in this industry and recommending what we believe to be appropriate funds based upon your specific investment situation and profile.

Invest Like The Most Successful Institutions And High Net Worth Investors

Results show funds with the highest percentage of assets in alternative investments have historically performed the best over 10 and 20 year periods.

Given the potential benefits of alternative investments, we find it interesting that the typical individual investor has little to no exposure, whereas large institutions have a significant portion of their portfolios allocated to alternatives. One reason for this may be that while many investors will acknowledge that they are worried about losing money due to market volatility they are still unwilling to consider alternative investments even though their portfolios might benefit from their inclusion despite the high risk profile of such investments.

Source: “Investing Like the Harvard and Yale Endowment Funds” by Michael W. Azlen, CAIA and Ilan Zermati of Frontier Investment Management. “The referenced study includes only those funds identified above. There is no guarantee that any investment or fund will achieve similar performance or its stated objectives, and they may, in fact, lose money including the potential of all principal invested.”

Investment Opportunities

Accredited real estate investors are in a unique position to diversify their investment strategy through private real estate funds. We offer a range of options to fit your circumstances, lifestyle needs, and financial objectives.


Preferred equity, or preferred stock, is often considered a hybrid security. While it shares many characteristics with debt instruments, it also offers investors the opportunity to seek to mitigate risk. Unlike common equity, preferred equity investors have the possibility of receiving a fixed annual return on their initial investment, and the potential for cash flow distributions are received prior to common stock shareholders. These options are attractive to investors as they target higher-fixed income payments, and shareholders have priority claim over dividends and liquidation proceeds if a company defaults.

Companies leverage preferred equity as a unique form to finance real estate investments or developments. There are different types of preferred equity, offering investors the potential for varying returns and risks. The most common include cumulative, callable, convertible, participating, and adjustable-rate preferred stock (ARPS).

A real estate investment trust, or REIT, is a corporation that owns and/or manages income-producing commercial real estate. When individuals buy a real estate investment trust (REIT) share, they are purchasing a share of the company that owns and manages the rental property. Shares of publicly traded REITs can be purchased and sold as easily as other stocks, even on a daily basis, thereby providing significant liquidity to investors.

Many types of REITs exist. Most focus on a specific product type (e.g., retail, hospitality, multifamily housing, senior living facilities, student housing, office space, self-storage, industrial, and so on) or geography (e.g., commercial real estate in the Northeast vs. Southwest).
Interval Funds

An interval fund is a type of closed-end fund that offers liquidity to investors at stated intervals – typically quarterly, semi-annually, or annually. This means investors can sell a portion of their shares at regular intervals at a price based on the fund’s net asset value. However, there is no guarantee that investors can redeem their shares during a given redemption period. As such, interval funds should generally be treated as long-term investments that, in turn, will usually offer the potential for an illiquidity premium in exchange.

Interval funds can be used to invest in many securities and asset classes, including, but not limited to, real estate. A single interval fund is not limited to investing in a single asset class; in fact, it can invest in various assets as a means of diversifying its holdings.

A real estate income fund is a specific subset of funds that focuses exclusively on investing in income-generating real estate. Real estate income funds provide another entry point for those looking to invest cash in large commercial real estate portfolios. Real estate income funds are particularly appealing to retail investors who want to own institutional-quality real estate that would otherwise be out of reach to them. A real estate income fund pools capital from many investors, and then the fund’s sponsor oversees all of the fund’s activities – from due diligence and underwriting to property renovations, stabilization, ongoing management, and eventually disposition. Depending on the nature of a real estate income fund, the fund can have different investment minimums as well as lengthy hold periods, and, therefore, the capital invested should be considered illiquid during that hold period.

There are dozens, if not hundreds or thousands, of different types of investment funds, including equity funds, bond funds, money market funds, mutual funds, and hedge funds.