THINK GOLD, CRYPTOS AND PRIVATE EQUITY WHEN IT COMES TO THE BREWING ECONOMIC STORM.

 The outlook for the global economy looks gloomy and more uncertain this year, at least according to the latest research data from the International Monetary Fund.

There have been several shocks to the world economy, which was already weakened by the pandemic: worldwide high inflation causing tighter credit conditions, especially in the US; a slower-than-anticipated slowdown in China due to Covid-19 outbreaks and lockdowns; Russia-Ukraine war had negative spillover effects. 

During August 2022, the 12-month overall inflation rate was 8.5 percent. 

Prices have gone up, and the private sector's activity reached a 15-month low in July as Purchasing Managers' Index survey data pointed to a decline in new orders and muted business confidence. 

In the nine months to September 2022, yields on government securities have increased significantly.

This has led to negative market returns on bond holdings as five-year yields are at levels last seen on 15-year bonds in December 2021. 

As a result of higher discount rates and supply chain disruptions, equities have suffered from poor earnings globally. 

Due to increased perceived risks associated with the electioneering period, volatility among traditional investment vehicles such as stocks, bonds and cash has also contributed to the poor performance of the Nairobi Securities Exchange, which is down 15.8 percent so far. 

Nevertheless, there are alternative investments to consider.

RISK DISTRIBUTION

Alternative investments do not fall into the traditional categorization of those listed above. They typically are more appealing to investors in sharing risk. 

These are things like tangible assets like precious metals, natural resources, and real estate, and financial assets like private equity, private debt, and hedge funds.

The feature most attractive about them is their correlation with traditional asset classes. 

This provides an opportunity for portfolio diversification, yielding a higher return with an improved risk-adjusted rate. 

Alternative investments typically can be sheltered from turbulence, like the volatility seen in global equity markets in recent memory.

As an example, government borrowing is expected to keep going up, interest rates are expected to go up too because the central bank wants to fight inflation. Volatility in the stock market is expected to persist in the short-term as the long-term effects of the Covid-19 pandemic wear off. As a result, there is a less-than-investment-grade environment with low stock movements and minimal benefits when combining fixed income and equities.

Incorporating alternatives in your portfolio construction will give it more diversification and help improve the risk-adjusted return. This is especially true during periods of slow economic growth like the last two years.

MARKET SUPPORT 

Investment in the industry of alternative investments has become an important pillar of the global financial system and the world economy.

Now investors pour trillions of dollars around the world and play a critical role in the support of global capital markets and the redistribution of risk.

Investors have recently expressed greater interest in cutting-edge investment options like digital currencies, artificial intelligence, cryptocurrencies, and investment vehicles of the decentralized finance system.

Typically, an alternative investment's risks will be characterized by lack of liquidity, a lower degree of regulation, less transparency, high fees, and limited data in comparison to standard investments. 

Investments into alternatives may also have complex legal and tax issues. Furthermore, those invested in alternatives must ensure that the risks associated with their particular investment line up with their own risk capacity.