318. Alternative investments: higher risk, higher returns?

Alternative investments can sound like the part of investing reserved for wealthy insiders. Private equity and private credit can offer access to companies and opportunities you won’t find on the share market, but they can also mean six-figure minimums, less transparency and locking your money away for years.

So what are investors actually getting in exchange for that extra complexity?

In this episode, Jack and Tash unpack the world of alternative investments, from private equity and private credit to employee share schemes and some much stranger assets held inside SMSFs. They look at why these investments can attract wealthy investors, where the higher return expectations come from, and the risks that are easier to overlook when the numbers look compelling.

In this episode we'll discuss:

💰 The comparison between $1 million invested in the S&P over 35 years and the returns quoted for average private equity funds, and how compounding can dramatically widen the gap over time.

🚪 Why many private investments are restricted to wholesale investors, including the $250,000 income and $2.5 million net asset tests.

🏗️ How private credit works, why borrowers might use it instead of a bank, and why property-backed loans can offer yields around 10%.

🔒 Why investors may need to lock their money away for five or seven years, and how the illiquidity premium fits into the return equation.

🏢 Why companies such as Canva can stay private for longer, and why the number of publicly listed companies in the US has fallen dramatically since the 1990s.

🤝 Why the fund manager can matter so much in private markets, particularly when some funds require minimum investments of $100,000 or considerably more.

📉 The risks of employee share schemes when your income and a large part of your wealth are both tied to the fortunes of the same company.

🐎 Pokémon cards, artwork, wine and even horse semen inside SMSFs, plus the rules that determine whether an unusual asset can genuinely be held for retirement purposes.