According to figures from ACAFI (Chilean Association of Investment Fund Managers), as of March 2022, there were more than 690 investment funds, of which more than 140 were focused on alternative assets. These are the fastest-growing assets in recent years, with an average growth rate of 30% in the number of funds. This strategy currently manages more than 5.4 billion dollars, serving as a major driver of the local economy by providing financing to small and medium-sized enterprises (SMEs) and individuals who lack access to traditional financing. Alternative funds, in their various structures, enable financing ranging from housing—through long-term mortgage loans—to working capital for businesses, through invoice factoring.

Where to Invest?

When choosing an investment vehicle, each person should primarily consider the length of time the investment needs to remain in place—that is, whether the investment is short-, medium-, or long-term. They should also assess their risk tolerance and, at the same time, whether that risk is reflected in the instrument’s return. In the current environment, it has also become important to consider other factors, such as how closely assets are linked to inflation or whether the assets are domestic or international. Investors also evaluate variables such as the social impact of funds or even whether investments are in so-called “green” assets—that is, those with an environmental improvement component.

How Should Alternative Assets Be Evaluated?

Evaluating a fund’s assets is no easy task from an investor’s perspective, which is why one of the most important things to do at the outset is to get to know the manager and ensure that he or she conveys a thorough understanding of the managed asset—in other words, to know that they have a track record with that type of investment. On the other hand, it is also important to get to know the investment team and their experience.

Within each Alternative Asset Fund, one should be able to review or request information from the manager regarding the investment or asset selection process, which must include certain minimum steps for deciding which assets to invest in, such as, for example: 

• Analyze the debtor’s (issuer’s) ability to pay, its key financial indicators, and its external performance. This is the asset’s primary source of payment.
• Determine whether there is other collateral—such as real estate or an excess of assets—that would allow for a better debt-to-collateral ratio; this would serve as a secondary source of payment in the event that the primary source encountered any difficulties. 
• Determine whether there are any other types of collateral, such as insurance policies, securitization, or government guarantees, that could serve as a third source of payment.
• In addition, it is important to analyze the Fund’s financial indicators—or those of the instruments—that provide details on the status of the investment portfolio, such as liquidity indicators, payment behavior (delinquency), or concentrations; however, these indicators must be relevant to the nature of the instruments.

In any decision-making process—and especially when it comes to investments—there are always quantitative and qualitative factors to evaluate; that is why it is also important to have access to expert advice that can help guide us in our decision-making or provide us with a wider range of investment alternatives in less time. 

Cristián Rodríguez P.

Private Debt Manager

AGF Team