A glossary on alternative investments

A to F — absolute return, alpha, dry powder, fund-level fee

‍Absolute return

Absolute return refers to the amount of price gain or loss that an asset or portfolio achieves over a given period. It is not compared to any benchmark, peer, or other investments — unlike relative return. An absolute return investment strategy aims to generate positive returns regardless of whether markets are rising or falling. It focuses on getting consistent returns with lower volatility.

See also: Relative return

Accredited investor

An accredited investor is an individual who meets the requirements set out by the Monetary Authority of Singapore and opts in to be treated as an accredited investor. They are able to access a wider suite of investments than most non-professional individual investors (known as retail investors). Accredited investors are assessed to have the financial means and know-how to fully understand and handle the risks involved in investments that are exempt from certain regulatory requirements.

Active management

Under an active investing strategy, a fund’s manager tries to outperform a market index or benchmark by using various investment strategies and deciding which assets to buy, hold or sell. Besides beating the benchmark, an active manager may also attempt to hit one or more additional goals with the portfolio, such as managing risk, managing taxes, or making a positive environmental impact. Note that this strategy is not unique to alternative assets. 

See also: Passive investment management

Alternative investments

Dubbed “alternatives” or “alts” for short, alternative investments refer to essentially everything outside of traditional investments. The alts universe can range from more well-known asset classes such as private equity and credit, to more exotic investments such as whisky and farmland. It also includes less traditional methods of investing such as shorting and the use of leverage. Alternative investments tend to be available only to accredited investors.

Alternative Investments Endowus Fee

With effect from 1 Jan 2023, Endowus is charging a quarterly fee that applies specifically to alternative investments. To learn more about the fee structure of our alternative investments, refer to our FAQ here.

See also: Fund-level fee

Alpha

Alpha refers to above-benchmark returns. Often used as a measure of performance, it calculates the amount of excess return of a fund relative to the return of a benchmark index.

See also: Relative return

Beta

Beta measures the responsiveness of a stock or fund’s valuation to changes in the overall stock market.

Buyout

A buyout refers to a purchase of a controlling interest — more than 50% of shares — in a company’s stock. Buyout strategies typically aim to improve the acquired businesses before selling them off at a premium to their purchased price. 

Dry powder

Dry powder refers to unutilised cash reserves or liquid assets that are on hand and available for use. In private equity (PE) and venture capital (VC), dry powder is the amount of capital that has been committed by investors but is not yet allocated or deployed into investments.

Endowus Private Wealth

With Endowus Private Wealth (EPW), clients looking to invest a minimum of S$1 million in assets can gain exclusive access to more personalised solutions and products. Together with their dedicated Private Wealth Advisor, clients can also create their own Endowus Wealth Implementation Plan (WIP), a bespoke wealth plan customised to their specific situation and needs.

Family office

A family office is an entity that manages the finances of one or more wealthy individuals. Family funds are typically geared towards the specific needs of their principal or principals. There are single-family offices and multi-family offices.

Fund-level fee, or total expense ratio

The fund-level fee, or total expense ratio (TER), is charged by the fund manager for their services in managing and operating an investment fund such as unit trusts. This is calculated by dividing the total cost of the fund by total assets; this is why TER is expressed as a percentage of a fund’s net asset value (NAV).

Endowus keeps fund-level fees as low as possible by working with fund managers to access their lower-fee share classes and with our industry-first practice of rebating 100% Cashback on trailer fees to our clients. For more information on our transparent fees, click here.

See also: Alternative Investments Endowus Fee

Fund of funds

Also called a multi-manager investment, a fund of funds (FOF) is a fund that invests in other funds instead of directly purchasing stocks, bonds, or other types of securities. The aim is to achieve broader diversification and, in some cases, operational efficiency. A FOF may be structured as a unit trust (also known as a mutual fund), a hedge fund, a private equity fund, or an investment trust.

Fund Smart

The Endowus Fund Smart platform is a curated list of best-in-class funds at the lowest cost possible across asset classes, geographies, and sectors, managed by top global fund managers. The funds are carefully selected by the Endowus Investment Office through a proprietary, institutional-grade screening process.

On Fund Smart, investors can customise their own portfolios of one or more unit trusts (also known as mutual funds) in just a few clicks.

Fundamental analysis

Fundamental analysis is a method of evaluating the intrinsic value of an investment opportunity by analysing factors such as the company’s financial statements, management team, industry position, competitive landscape, and growth prospects. The purpose is to assess how financially healthy and sustainable the business is, the potential long-term performance, and whether the security is undervalued or overvalued based on its market price. This then informs the investor’s decision to buy, hold, or sell it with the aim of maximising gains. The idea is that the market may not always reflect the true value of an asset.

G to M — hedge funds, J curve, liquid alts, market neutral

General partners

General partners are the entities or firms that are responsible for the overall management and administration of the operations of a fund or partnership.

See also: Limited partners

Hedge fund

A hedge fund pools investors’ money and invests it in an effort to generate positive returns, similar to a unit trust (also known as a mutual fund). However, unlike unit trusts, hedge funds have more flexibility to employ a wide range of investment strategies and instruments and are also less regulated.

Illiquid alternatives

Illiquid alternative investments, or illiquid alts, are not easily convertible to cash or traded on public markets. Illiquid alts typically require longer investment horizons and may include assets such as real estate, private equity, venture capital, and fine art. Illiquid alts may offer higher potential returns, but they are also associated with higher risks and may require investors to lock up their capital for longer periods of time before they can be redeemed.

See also: Liquid alternatives

Infrastructure

Infrastructure refers to the basic systems and services necessary for a country to function effectively, such as gas, water, railways, airports, hospitals, and power plants. Infrastructure investing can be done via equity or debt investments.

See also: Real assets

Institutional investor

Institutional investors are organisations that invest — examples are insurance firms, banks, hedge funds, and pension funds. They can negotiate for lower fees and access products with high minimum investment sums due to their larger investment quantums. An institutional share class of a fund tends to be a share class that is created specifically for institutional investors and comes with lower fees and higher minimum investment amounts.

Endowus keeps fund-level fees as low as possible by working with fund managers to access their lower-fee share classes and with our industry-first practice of rebating 100% Cashback on trailer fees to our clients. For more information on our transparent fees, click here.

J curve

In private equity, the J curve describes the typical cash flows and performance of investments. It is a line graph that illustrates the timeline of a private equity fund, from deployment to harvest.

The curve is formed by plotting returns generated by a private equity fund against time, starting from the fund’s inception and till its termination. It is shaped like the letter “J” because the early years usually produce negative returns — due to factors such as startup costs and management fees — followed by a recovery and investment gains in the later years when the underlying investments increase in value.

‍Leveraged loan

A leveraged loan is extended to a company that already has either considerable amounts of debt or a poor credit rating or history. Given that leveraged loans carry a greater risk of default, they tend to have higher interest rates than traditional loans.

‍Limited partners

A private equity (PE) fund is known as a limited partnership, and the investors who contribute to the fund are the limited partners (LPs). 

See also: General partners

Liquidity

In the context of investments, liquidity generally refers to how easily or quickly an asset or security can be converted into ready cash, without incurring high fees or penalties. Liquidity risk is the risk that investors will not be able to buy or sell their securities when they want. Alternative assets are thinly traded and thus relatively illiquid — for example, an investor may be required to keep their money in a hedge fund for a certain duration.

Liquid alternatives

Liquid alternative investments are alternative investments that have relatively higher liquidity. These investments aim to provide the same alternative investment strategies, but are more accessible to non-institutional investors due to a lower required investment amount and the provision of more liquidity. 

See also: Illiquid alternatives

Market neutral

A market-neutral investment strategy or portfolio seeks to avoid a specific type of market risk and aims to generate returns that are independent of the market environment. Often, this is done by taking matching short and long positions with equivalent dollar values. The performance of such a strategy is driven primarily by the manager’s skill in selecting individual stocks or other exposures (such as industries, valuations, or countries). True market neutrality — which is not always possible — is achieved if there is zero correlation with the specified, unwanted source of risk.

N to P — private credit, private real estate, performance fee

Natural resources

Natural resources refer to materials, commodities, and substances that occur naturally on Earth. Key sectors under this umbrella include energy, metals and mining, agriculture, timber, and water. Natural resources investing is often described as a blend of private equity and infrastructure.

Net asset value

The net asset value (NAV) of a fund refers to its total assets after deducting its total liabilities, divided by the number of shares outstanding. It is commonly used to indicate the per-share value of a unit trust (mutual fund) or an exchange-traded fund (ETF).

Open-end vs closed-end

An open-end fund’s shares can be continuously issued to investors, and it also accepts a constant flow of fresh capital. New shares in an open-ended fund are created whenever an investor buys them. The majority of hedge funds and unit trusts are open-end.

A closed-end fund issues only a fixed number of shares once, through an initial offering, and does not issue new shares subsequently even if there is more demand from investors. Most closed-end funds do not allow redemptions before the end of the stipulated time horizon.

Private equity

Commonly known as PE, private equity refers to shares or ownership in any company that is not publicly traded on a stock exchange. 

Passive management

Under a passive strategy, also known as index investing, a fund replicates a market index or benchmark as much as possible with its portfolio. The aim is to achieve returns that are at least equal to the index’s. Passive managers focus on minimising the tracking error of their portfolio and the index. They do not tactically or actively change the asset allocation based on market conditions or economic indicators, and do not try to identify mispriced securities.

See also: Active investment management

‍Private credit

Private debt or private credit refers to debt financing provided by a non-bank investor, such as a fund, to a borrower that is typically a small or medium-sized enterprise. The loans can vary in terms of interest rates and seniority in the capital structure (that is, who gets paid first). The loans are generally not publicly traded.

‍Private markets

Private markets are where investors can invest in assets or financial instruments that are not listed on an exchange, such as the equity or debt of a private company. Private investments do not trade publicly, and are typically referred to as alternative assets or alts.

Public markets

Public markets are where most individuals have access to buy and sell traditional investments such as the stocks of publicly listed companies, retail bonds, and exchange-traded funds (ETFs).

Private real estate

Investing in private, or unlisted, real estate involves the ownership (either direct or indirect) of property outside of public markets. One way to do so is by purchasing shares in a private investment fund that owns property, which could range from urban trophy assets to highly speculative development projects, depending on the fund’s strategy.

The terms private real estate (PRE) and private equity real estate (PERE) are often used interchangeably. However, some industry players define PERE more narrowly — as investments that are specifically made through private equity fund structures.

Performance fee

A performance fee is charged on top of the base management fee, and is designed to incentivise or reward a manager for strong performance. Performance fees are calculated as a percentage of the fund’s returns and typically earned only if the fund outperforms a certain benchmark or hurdle rate. A hurdle rate is the predetermined level of return that the fund must meet before it earns the performance fee.

The performance fee may also be subject to a high-water mark, which refers to the highest value (net asset value or NAV) that the fund has ever reached. If there is such a provision, the manager can only charge a performance fee when the fund value exceeds the high-water mark. This means the performance fee is only charged on new profits after any previous losses have been recouped. 

R to Z — relative return, quant, venture capital

Real assets

Investments in physical, tangible assets — such as a building, a pipeline, or timber — that are long-term in nature are known as real assets. These include investments in real estate, infrastructure, and commodities like gold or oil.

Relative return

Relative return refers to the return on an asset or portfolio over a given period relative to a benchmark. It is the difference between the absolute return and the market index’s return. Funds managed on a relative-return basis aim to deliver better returns than the benchmark.

See also: Absolute return

Qualitative investing

Qualitative investing focuses on evaluating the qualitative or subjective factors of an investment opportunity, such as the company's management team, brand strength, competitive positioning, and market trends — rather than solely relying on quantitative or numerical data.

Quantitative investing

Quantitative, or quant, investing uses statistical and mathematical techniques to understand the behaviour of assets, detect investment opportunities, make investment decisions, and execute trades. In a quant fund, the securities are selected based on numerical data, with algorithmic trading technology and advanced quantitative models (often proprietary), rather than human intellect and judgement. They can rely on a wide variety of trading signals, ranging from real-time company news and global asset values to economic data points.

Secondaries

Secondaries refer to the buying and selling of existing investment holdings, often at a discount depending on the remaining fund life and the quality of the assets. These can include shares of private equity, venture capital, or real estate funds that are being sold by existing investors. The secondary market allows buyers to gain exposure to established investments, obtain unlisted fund units, and have the opportunity to acquire these assets at favourable prices. It also enables sellers to monetise their investments early.

Thematic investing

Thematic or megatrends investing is an approach that focuses on predicted long-term trends instead of specific sectors or companies. Examples of such future-driven themes are artificial intelligence, clean energy, healthcare, and the subscription economy.

Venture capital

Venture capital (VC) refers to investments in startups, usually young or early-stage businesses — often pre-profit — with the potential for rapid growth. VC managers tend to invest smaller amounts to take minority stakes. This differs from private equity (PE) investments, which are often in bigger and more mature companies with a proven financial record, and may involve owning majority stakes.

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For more information on alternative investments and Endowus Private Wealth, please contact us for a consultation.

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