Investing in alternative funds can be very rewarding, but it involves a number of risks and challenges. If you choose to invest in funds displayed on FundWiser, you need to be aware of and accept these important considerations:
1. Loss of Capital
Most funds invest using proprietary strategies which may be risky, and if you invest in a fund displayed on the platform, it is likely that you could lose all of your invested capital. You should not invest more money in a fund than you can afford to lose without altering your standard of living.
More fund specific risks will be highlighted in the fund pitch page.
2. Lack of Liquidity
Almost all investments in funds displayed on the platform will be highly illiquid. It is very unlikely that there will be a secondary market for your investment in the fund. This means that you are unlikely to be able to sell your investment until the end of the fund life. Even at the end of the fund life, the fund may request an extension if it has not been able to fully exit its underlying investments. The typical hold period for these funds will be as follows, however, each specific fund will have a different fund life which will be stated in the fund pitch page:
- Private equity funds: 10 years
- Venture capital funds: 10 years
- Hedge funds: 1 month to 3 years+
- Real estate private equity funds: 10 years
- Private debt funds: 10 years
3. Rarity of Dividends/ Distributions
Distributions or dividends are paid by funds based on the returns they generate from their investments. Most of the funds will only pay distributions or dividends in the later part of their fund cycle i.e. year 3 to 5 onward for most funds. This means that you are unlikely to see a return on your investment until mid-way or the end of the fund life cycle. Some funds have no obligations to pay distributions and can re-invest their returns back into new investments
If you choose to invest in alternative funds, such investments should be made as part of a well-diversified portfolio. This means that you should invest only a relatively small portion of your investible capital in alternative funds as an asset-class, and the majority of your investible capital should be invested in safer, more liquid assets. It also means that you should spread your investment between multiple funds rather than investing a larger amount in just a few.
In addition to the general investment risks posed by investing into alternative investment funds, there are specific risks attached to each particular asset class.