Commercial real estate holdings include office and industrial buildings, hotels and resorts, warehouses, shopping centers, and other large scale developments. Millions of dollars are commonly required to invest into these projects.
Hedge Funds, often considered as mutual funds on steroids, are usually run by very successful and experienced investment professionals and Wall Street traders. There are numerous investment strategies, such as betting on spreads between interest rates, making bets on falling markets, or merger arbitrage, done with a high leverage and frequently employing sophisticated computer algorithms set-up by MIT or Harvard quants. An initial investment of $100,000 and up (which typically is lacked for years) is not uncommon with hedge funds.
Private Equity Funds tend to operate as limited partnerships where investors are asked for $250,000, or more, to join. The investment is lacked for years as well (meaning it can’t be liquidated, at least not without a penalty). Moreover, a certain wealth is required to qualify as an investor. Thus, if all you got is quarter of a million dollars, you probably won’t qualify, even if you’re willing to put up the entire amount.
Fortunately, the free marketplace came up with solutions, and now most small investors can access alternative investments without having a fortune.
One of the ways is to purchase Real Estate Investment Trusts (REITs). These companies acquire and manage various kinds of real estate and some get involved into mortgage financing. Shareholders reap benefits in the form of dividends (most REITs pay out 90% of profits) as well as potential capital gains when REIT shares are sold (given the market values of their real estate holdings have risen.) Many REITs are traded as shares on the stock market, and thus can easily be purchased without a large sum.
Another solution for the masses to access once privileged investments is the creation of hedge fund-like Exchange Traded Funds (ETFs) that replicate some of the hedge fund strategies described above. Since ETFs trade as stocks, investing in them is relatively easy and doesn’t require a large sum of money. In addition, ETFs can be easily sold, thus adding the benefits of liquidity.