Alternative investments and hedge funds involve a high degree of risk and can be illiquid due to restrictions on transfer and lack of a secondary trading market. They can be highly leveraged, speculative and volatile, and an investor could lose all or a substantial amount of an investment. Alternative investments may lack transparency as to share price, valuation and portfolio holdings. Complex tax structures often result in delayed tax reporting. Compared to mutual funds, private funds are subject to less regulation and often charge higher fees. Alternative investment managers typically exercise broad investment discretion and may apply similar strategies across multiple investment vehicles, resulting in less diversification. Trading may occur outside the United States which may pose greater risks than trading on U.S. exchanges and in U.S. markets. Diversification does not ensure against loss.
There are significant differences between public and private equities, which include but are not limited to, the fact that public securities have a lower barrier to entry than private equity. There is also greater access to information about public companies. Private equities typically have a longer time horizon than public equities before profits, if any, are realized. Public equities provide greater liquidity, whereas private equities are considered highly illiquid. Private credit involves an investment in non-publicly traded securities which are subject to illiquidity risk. Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss. Investments in Private Credit may also be subject to real estate-related risks, which include new regulatory or legislative developments, the attractiveness and location of properties, the financial condition of tenants, potential liability under environmental and other laws, as well as natural disasters and other factors beyond a manager’s control. Liquid alternatives are generally investment vehicles that offer typical hedge fund strategies in a mutual fund format with daily liquidity. Managed futures contain heightened risk, including wide price fluctuations and may not be appropriate for all investors. Short selling and short position derivative activities are considered speculative and involve significant financial risk. Short positions profit from a decline in price but can generate a loss if the price increases. Shorting may also result in higher transaction costs which reduce return.
This is neither an offer to sell nor a solicitation of an offer to buy interest in any product or strategy in any jurisdiction. Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that any investment will achieve its objectives, generate profits or avoid losses. Alternative investments may be appropriate only for persons of adequate financial means who have no need for liquidity with respect to their investment and who can bear the economic risk, including the possible complete loss, of their investment. PIMCO does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns.
This material contains the current opinions of the author but not necessarily those of PIMCO, and such opinions are subject to change without notice. This material is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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