Speaking to Nest Egg this week, the CEO of fully-licensed marketplace lender Zagga, Alan Greenstein, said that in the event of a market crash, alternatives could be a way of hedging bets.
“The behaviour of retirees and SMSFs is to either be highly conservative or ultra-aggressive and what we're saying is that alternatives are the perfect mechanism to hedge bets on both ways,” Mr Greenstein said.
“The alternatives ultimately populate the middle of that spectrum.”
Continuing, he explained that alternatives can be a great hedging tool – although he acknowledged that he was using the description in the loosest possible sense.
“We are certainly not suggesting that you shouldn't have shares in the market, or that you shouldn't have money in the bank,” Mr Greenstein said.
“We're suggesting that you very much should, but as part of proper portfolio planning and as part of an asset allocation and investment strategy, you should look to have a well-balanced portfolio and therefore you want stuff in your portfolio that is giving you a known return, which an alternative does.”
He said in the context of alternatives as a hedging instrument, it populates the middle ground while receiving a better yield than money in the bank.
To Mr Greenstein, alternatives cover exotic assets like rare wine, art or single malt whiskey, and can extend to peer-to-peer property lending.
He said, “When you look at all of the really, shall we say, drastic or unusual types of investment opportunities at either end of the spectrum, then if you are a self-directed investor or SMSF, I would imagine that something that you would want to invest in is something that is reasonably secure, that's going to pay you a reasonable return that's above the market, that's going to be reasonably easy to understand, that's going to be transparent in terms of the price.”
Continuing, Mr Greenstein argued that self-directed sophisticated investors with a common sense approach and a willingness to carry out the due diligence should be able to reap the same benefits of property lending as banks.
“The fundamentals are no different, provided that you get the valuation right and build enough confidence in the loan,” he said.
“Absolutely it's not risk free, absolutely borrowers can fail to pay but … as long as you've put the loan at a decent LVR and even in a market where property prices are declining, and we obviously take that into account, it's highly unlikely that they're going to lose their investment.”
Mr Greenstein conceded that investing in alternative structures and assets is far from one size fits all. However, he contended that as long as investors are qualified, he believes marketplace and alternative products are not complicated to invest in once investors are actually aware of them.
“The first thing is to create awareness from our side. There are lots of potential funders out there and I think as options are becoming limited for SMSFs, so they are becoming more aware of private lenders and the opportunities around private lending,” he said.