Alternative Investments

Alternative investments can play a important role in helping you diversify your portfolio, help protect against volatility, or accelerate growth.

Incorporating Alternative Investments as a core part of your portfolio to tap into a broader range of opportunities and strategies may help you increase the chances of achieving your investment goals.

Our dedicated team of Alternative Investments professionals can help you access solutions through a wide variety of structures tailored to your liquidity needs, goals, time horizon and risk tolerance including direct investment, professionally-managed model portfolios and non-traditional mutual funds.1

Potential benefits and risk considerations of Alternative Investments

Whether you’re looking to maintain your lifestyle through retirement or gain returns to leave a lasting legacy, Alternative Investments may be the right choice for you. They can complement your traditional equities and fixed income investments, and potentially help you improve diversification, increase return potential and mitigate risk:

  • Enhanced diversification: May complement your traditional portfolio and diversify your assets.2
  • Increased return potential: May help to provide additional sources of returns by exposing you to a broader range of securities.3
  • Lower volatility: May help strengthen your financial strategy without increasing expected volatility.

 

It is important to be aware that compared to traditional investments, Alternative Investments may:

  • Be less liquid
  • Use leverage 
  • Have less standardized reporting
  • Charge higher fees including a performance incentive.

A wide range of Alternative Investment types

As a Merrill client, you can work with your Private Wealth Advisor to build a custom allocation to Alternative Investments, drawing from:

Private Market funds4 that seek to capitalize on periods of rapid growth or restructuring, investing in private and certain public companies during various stages of their life cycles.

  • Private market managers can improve the operations of the companies they invest in, therefore creating even more value for investors.
  • Historically, private markets have outperformed public equity, offering qualified investors a premium for the additional risk associated with investing in the private markets, including illiquidity, less transparency for investors, higher fees and longer investment horizon.

 

Hedge Funds that engage in a wide range of investments and trading strategies not available to traditional asset managers, such as equity long/short strategies and derivative instruments.

  • Adding hedge funds to a portfolio can help provide a buffer for market downturn and assist with capital preservation.

 

Real Assets strategies that comprise both actively and passively managed investments in precious metals, commodities, real estate, infrastructure, agricultural land and natural resources.5

  • Investments in real assets often act as additional diversification from stocks and bonds and can serve as a hedge against inflation.
  • The Specialty Asset Management5 group manages non-financial assets such as farmland, timberland, oil & gas and commercial real estate.

The Merrill difference

As always, we’ll provide you with professional advice, research and portfolio construction to help you invest in these widely recognized solutions.

  • The independent due diligence team within our Chief Investment Office sources, evaluates, and carefully monitors the Alternative Investments that are available for purchase for qualified clients on our platform.6
  • We offer third party Alternative Investments based on their merits, rather than offering proprietary ones.
  • Our scale and commitment facilitates access — often exclusive — to a broad array of asset managers, including some with lower minimums than if you were to invest directly with the manager rather than through Merrill.

Connect with a Merrill Private Wealth Advisor.

Frequently asked questions

1 Non-Traditional Mutual Funds (“NTMFs) are mutual funds and exchange-traded funds that are classified as alternative investments because their principal investment strategies utilize alternative investment strategies or provide for alternative asset exposure as the means to meet their investment objectives. Though the portfolio holdings of NTMFs are generally made up of stocks and bonds, NTMFs may also hold other asset classes and may use short selling, leverage and derivatives. While the strategies employed by NTMFs are often used by hedge funds and other alternative investment vehicles, unlike hedge funds, NTMFs are registered with the SEC and thus subject to a more structured regulatory regime and offer lower initial and subsequent investment minimums, along with daily pricing and liquidity. While these investment vehicles can offer diversification within a relatively liquid and accessible structure, it is absolutely essential to understand that because of this structure, NTMFs may not have the same type of non-market returns as other investments classified as alternative investments (such as hedge funds) and thus may serve as an imperfect substitute for such other investment vehicles. The risk characteristics of NTMFs can be similar to those generally associated with traditional alternative investment products (such as hedge funds). No assurance can be given that the investment objectives of any particular alternative investment will be achieved. Like any investment, an investor can lose all or a substantial amount of his or her investment. In addition to the foregoing risks, each alternative investment vehicle is subject to its own varying degrees of strategy-specific or other risks. Whether a particular investment meets the investment objectives and risk parameters of any particular client must be determined case by case. You must carefully review the prospectus or offering materials for any particular fund/pooled vehicle and consider your ability to bear these risks before any decision to invest.

2 Diversification does not ensure a profit or protect against loss in declining markets. Alternative investments involve limited access to the investment and may include, among other factors, the risks of investing in derivatives, using leverage, and engaging in shorts sales, a practice which can magnify potential losses or gains. Alternative investments are speculative and involve a high degree of risk and volatility.

3 Alternative investments are intended for qualified investors only. Alternative Investments such as derivatives, hedge funds, private equity funds, and funds of funds can result in higher return potential but also higher loss potential. Changes in economic conditions or other circumstances may adversely affect your investments. Before you invest in alternative investments, you should consider your overall financial situation, how much money you have to invest, your need for liquidity and your tolerance for risk. Alternative Investments are speculative and involve a high degree of risk.

4 Private investments involve significant risks, including those associated with companies with a limited operating history, securities that do not have a liquid market, and investments that are difficult to value. They are only appropriate for investors with substantial knowledge and prior experience in making private investments, who are capable of independently evaluating the merits and risks of such investments, and who have the wherewithal to bear investment losses.

5 Nonfinancial assets, such as closely-held businesses, real estate, fine art, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations and lack of liquidity. Nonfinancial assets are not in the best interest of all investors. Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy. Client eligibility may apply.

6 The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation.

Alternative investments may not be in the best interest of certain investors. Investors must have a pre-existing relationship of six months or longer with the financial advisor before becoming pre-qualified to receive information on alternative investment products. No assurance can be given that any alternative investment's investment objectives will be achieved. Many alternative investment products are sold pursuant to exemptions from regulation and, for example, may not be subject to the same regulatory requirements as mutual funds. In addition to certain general risks each product will be subject to its own specific risks, including strategy and market risk. Certain alternative investments require tax reports on Schedule K-1 to be prepared and filed. As a result, investors will likely be required to obtain extensions for filing federal, state, and local income tax returns each year.

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