Alternative Investments

In general, alternative investments encompass assets that don’t neatly fall within the traditional categories of stocks, bonds, or cash. Alternative investing is the umbrella term for investments in alternative asset classes or for alternative strategies for investing.

Alternative Investment Strategy

Why should I invest in alternatives?

Alternative investing may make sense for investors who are interested in diversifying their portfolios. Our belief firmly rests on the idea that superior returns emerge from a well-curated blend of investments spanning diverse asset classes. This guiding principle shapes our approach to investment management, granting our clients the opportunity to explore avenues beyond the confines of traditional equity and fixed-income investments. 

Notably, alternative investments frequently diverge from the conventional trends observed in stock and bond markets. They serve as invaluable tools for diversifying portfolios and mitigating risk, particularly during periods of market turbulence, rising interest rates, and inflation. What’s even more enticing is that alternative investments often come with distinct tax advantages that distinguish them from traditional investment options.

By emphasizing a long-term perspective, alternative investing becomes a cornerstone of strategic wealth management and a crucial asset in the pursuit of enduring financial security.

Alternative and Opportunistic Investment Strategies*

*Alternative Investments Risk Disclosure

Investing in real estate investments trusts (REITs) are companies that own, operate or finance income-producing real estate. The cash flow made from a REIT is from rent or mortgage interest paid as dividends to the investors. By law, REITs are required to pay out 90% of annual income in dividends. REIT’s provide investors the opportunity to own real estate within their portfolio. Dividends represent a potential, steady income source for investors, often surpassing that of common equities thanks to their favorable tax treatment.

Investing in private equity and privately-held investments may yield superior returns to major indices. These long-term, illiquid investments can potentially outperform short-term, highly liquid options.

Direct participation programs, or DPPs, in the oil and gas sector include two primary types of programs:

A) The drilling programs (i.e. drilling, completing and operating wells) can provide investors with potential for a steady stream of distributions and multiple tax benefits, the most significant being the intangible drilling cost (IDC) deduction and the tangible drilling cost deduction.

B) Royalty and income based programs can provide investors with higher yields of income from producing wells and a depletion deduction, but do not provide drilling related tax benefits.

Owners of property seeking to sell appreciated real estate generally will incur capital gains. One way to delay payment of capital gains taxes is to reinvest the proceeds in “like-kind” real estate under the rules of Section 1031 of the tax code. There are specific requirements with a strict timeline to perform the exchange to qualify to defer the capital gains tax. From day one of selling the property, proceeds must be placed in escrow with a Qualified Intermediary. Within 45 days, a new property must be identified, and the exchange must close within 180 days of relinquishing the old property to qualify for tax deferral.

If that feels overwhelming, there is another alternative for investors who may not have the time, energy or real estate expertise to find and/or manage a replacement property, called a DST. These are passive turn-key solutions that qualify as a replacement property for real property that investors may invest all or a portion of the sales proceeds. DST’s can provide professional asset and property management, access to high quality real estate, portfolio diversification, wealth preservation, and passive ownership.

Investing with private land owners and sponsors that have a tract record of maximizing the value of land with potential social and economical impact.

Investing in clean energy has gained significant attention and adoption due to their environmental benefits and potential to reduce reliance on fossil fuels. In addition, the Inflation Reduction Act passed in August 2022 by Congress increased several key tax incentives and expanded eligibility for accelerated depreciation, which could benefit certain energy projects.

Expanded tax incentives include the Investment Tax Credit (ITC) and the Production Tax Credit (PTC), among others. The ITC is a tax credit that reduces the federal income tax liability for a percentage of the cost of a qualified system that is installed during the tax year. The PTC is a per kilowatt-hour (kWh) tax credit for electricity generated for the first 10 years of a qualifying system’s operation. It reduces the owner’s federal income tax liability and is adjusted annually for inflation.

Designed to promote economic development and job creation in economically distressed communities by providing tax benefits to investors who invest in designated areas. They can have the following potential tax benefits when meeting the specific rules and requirements and are contingent on meeting these rules, including the substantial improvement of property and compliance with Qualified Opportunity Fund (QOF) regulations:

A) Capital Gains Deferral: Investors can defer paying taxes on capital gains by reinvesting those gains into a QOF within 180 days of realizing the gain. This deferral can last until the investment in the QOF is sold or until December 31, 2026, whichever comes earlier.

B) Tax-Free Growth: Perhaps the most significant benefit is that if an investor holds their QOF investment for at least 10 years, any appreciation on that investment is tax-free when it’s sold. This means that not only are the original deferred gains potentially reduced, but any new gains from the investment itself are excluded from capital gains tax.

C) Step-Up in Basis: If an investor holds their QOF investment until their death, their heirs can potentially receive a “step-up in basis,” which means the investment’s value is adjusted to its fair market value at the time of the investor’s death, potentially eliminating all capital gains tax on that investment.

Investing in early-stage companies with high growth potential can be lucrative, though it comes with higher risk due to the uncertainty of startups’ success.

Investing in real estate investments trusts (REITs) are companies that own, operate or finance income-producing real estate. The cash flow made from a REIT is from rent or mortgage interest paid as dividends to the investors. By law, REITs are required to pay out 90% of annual income in dividends. REIT’s provide investors the opportunity to own real estate within their portfolio. Dividends represent a potential, steady income source for investors, often surpassing that of common equities thanks to their favorable tax treatment.

Investing in private equity and privately-held investments may yield superior returns to major indices. These long-term, illiquid investments can potentially outperform short-term, highly liquid options.

Direct participation programs, or DPPs, in the oil and gas sector include two primary types of programs:

A) The drilling programs (i.e. drilling, completing and operating wells) can provide investors with potential for a steady stream of distributions and multiple tax benefits, the most significant being the intangible drilling cost (IDC) deduction and the tangible drilling cost deduction.

B) Royalty and income based programs can provide investors with higher yields of income from producing wells and a depletion deduction, but do not provide drilling related tax benefits.

Owners of property seeking to sell appreciated real estate generally will incur capital gains. One way to delay payment of capital gains taxes is to reinvest the proceeds in “like-kind” real estate under the rules of Section 1031 of the tax code. There are specific requirements with a strict timeline to perform the exchange to qualify to defer the capital gains tax. From day one of selling the property, proceeds must be placed in escrow with a Qualified Intermediary. Within 45 days, a new property must be identified, and the exchange must close within 180 days of relinquishing the old property to qualify for tax deferral.

If that feels overwhelming, there is another alternative for investors who may not have the time, energy or real estate expertise to find and/or manage a replacement property, called a DST. These are passive turn-key solutions that qualify as a replacement property for real property that investors may invest all or a portion of the sales proceeds. DST’s can provide professional asset and property management, access to high quality real estate, portfolio diversification, wealth preservation, and passive ownership.

Investing with private land owners and sponsors that have a tract record of maximizing the value of land with potential social and economical impact.

Investing in clean energy has gained significant attention and adoption due to their environmental benefits and potential to reduce reliance on fossil fuels. In addition, the Inflation Reduction Act passed in August 2022 by Congress increased several key tax incentives and expanded eligibility for accelerated depreciation, which could benefit certain energy projects.

Expanded tax incentives include the Investment Tax Credit (ITC) and the Production Tax Credit (PTC), among others. The ITC is a tax credit that reduces the federal income tax liability for a percentage of the cost of a qualified system that is installed during the tax year. The PTC is a per kilowatt-hour (kWh) tax credit for electricity generated for the first 10 years of a qualifying system’s operation. It reduces the owner’s federal income tax liability and is adjusted annually for inflation.

Designed to promote economic development and job creation in economically distressed communities by providing tax benefits to investors who invest in designated areas. They can have the following potential tax benefits when meeting the specific rules and requirements and are contingent on meeting these rules, including the substantial improvement of property and compliance with Qualified Opportunity Fund (QOF) regulations:

A) Capital Gains Deferral: Investors can defer paying taxes on capital gains by reinvesting those gains into a QOF within 180 days of realizing the gain. This deferral can last until the investment in the QOF is sold or until December 31, 2026, whichever comes earlier.

B) Tax-Free Growth: Perhaps the most significant benefit is that if an investor holds their QOF investment for at least 10 years, any appreciation on that investment is tax-free when it’s sold. This means that not only are the original deferred gains potentially reduced, but any new gains from the investment itself are excluded from capital gains tax.

C) Step-Up in Basis: If an investor holds their QOF investment until their death, their heirs can potentially receive a “step-up in basis,” which means the investment’s value is adjusted to its fair market value at the time of the investor’s death, potentially eliminating all capital gains tax on that investment.

Investing in early-stage companies with high growth potential can be lucrative, though it comes with higher risk due to the uncertainty of startups’ success.