Alternative Investments at Fidelity

Alternative investments, also known as alternatives or alts, can be generally defined as investments distinct from traditional holdings, such as stocks, bonds, and cash. The term "alternative investments" can cover a diverse range of asset types and investment strategies, including private equity, private credit, real assets, digital assets, and liquid alternatives.

These alternative asset types have distinct characteristics and can play unique roles in a portfolio for investors seeking to enhance returns, manage risk, or improve diversification.

Some of the primary asset classes for alternative investments include (but are not limited to):

• Private equity. Seeks to provide enhanced long-term capital appreciation by investing in the equity of private, non-traded companies and helping them optimize operations in an effort to drive future growth. Private equity funds, in general, invest in companies that do not trade in public markets. Unlike publicly traded investments, investing in private equity typically requires an investor to hold an investment for multiple years to gain value before they are able to exit positions.
• Private credit. Seeks to provide higher income and/or total returns versus public credit markets by investing in privately negotiated loans, bonds, or other below-investment-grade debt. Private credit, like private equity, generally refers to investments that are originated or negotiated privately, are not traded in public markets, and are often composed of higher-yielding securities. This can include direct lending, whereby investors lend money directly to private companies. The borrowers are typically small and midsized private companies, while the lenders may be institutions or asset management firms.
• Real assets. Seek to provide attractive total returns, diversification from traditional investments, and income through exposure to physical assets such as private real estate, fine art, collectibles, commodities, and investments in infrastructure, such as bridges, highways, pipelines, airports, and data centers.
• Liquid alternatives. Seek to enhance returns, diversify and/or provide risk mitigation by investing in public markets, such as equities, fixed income, commodities, currencies, and options, or in derivatives. Unlike traditional buy-and-hold strategies, liquid alternatives usually have the flexibility to take both long and short positions, the latter seeking to benefit from declining asset values.
• Digital assets. Seek to provide growth and diversification by investing in digital assets, such as cryptocurrencies and crypto tokens, and are designed to work as mediums of exchange that are stored on a decentralized ledger known as a blockchain.

There are many ways in which alternative investments may differ from traditional investments:

• Eligibility: Liquid alternatives are generally available to most investors. However, private market alternatives require investors to have a certain level of income, net worth, or hold specific financial licensures to be eligible to invest.
• Complexity: Because alternative investments can have more complex structures when compared with traditional investments, it can be more challenging for investors to evaluate the details of an alternative investment opportunity.
• Liquidity: Different alternative investments offer varying levels of liquidity, which refers to how easily an investment can be sold. Many alternative investments can be subject to a "lock-up period" of a number of years, during which time the investment cannot be sold. Certain funds have "intermittent liquidity," which means that they may be able to be redeemed during tender windows or repurchase periods. Liquid alternatives, however, can generally be bought and sold at the investor’s discretion.
• Regulations: Alternatives may be subject to unique regulatory requirements, and, although they're regulated by the Securities and Exchange Commission (SEC), they can be exempt from registration with the SEC. This is one reason alternatives have historically only been available to more sophisticated qualified institutional investors.
• Risk: Alternative investments often present different types of risk than those of traditional investments. Many of these risks can be tied to specific characteristics of alternatives and their specific investment strategy. However, this additional risk may be accompanied by higher return potential.
• Fees: Some alternatives may have fee structures that differ from traditional investments, so it may be more difficult to determine exactly what your expenses may be. In many cases, the fees and expenses may be higher than those associated with more traditional investments.
• Funding: Alternatives can be subject to more complex funding processes, such as subscriptions and capital calls, which can complicate portfolio construction, rebalancing, and risk management.
• Tax reporting: Many alternatives have a standard Form 1099 tax-reporting obligation; however some alternatives may have a different or more complex tax-filing process. This in turn can delay or complicate tax filing, particularly because tax forms related to these investments, such as Schedule K-1s, tend to arrive later than the 1099s investors usually receive from traditional investments. This may require the taxpayer to apply for a tax-filing extension.
• Minimum investments: Private alternatives generally have higher minimum investments when compared to semi-liquid/liquid alternatives and traditional investments, which typically have no or lower minimum investment requirements.

Public markets are shrinking, with the number of publicly traded companies declining by more than 40% over a 25 year period.* This has resulted in investors chasing a shrinking number of investment opportunities across traditional asset classes. In addition, private companies are playing an increasingly important role in today's economy, representing significant growth potential. Dedicating some portion of a portfolio to alternatives could help you take advantage of this growth potential.

Alternative investments can provide access to strategies that traditional asset classes, such as stocks and bonds, or traditional "buy-and-hold" strategies, cannot, making them more appealing to sophisticated investors. Alternatives typically have a low correlation to traditional assets, meaning that they tend to respond differently to various market conditions, which can improve a portfolio's diversification and help with risk management. For example, some strategies, such as middle market direct lending or real assets, may be better able to weather economic conditions, such as inflation, than traditional assets. In addition, although some alternative investments may sometimes come with higher risk than traditional investments , they may also offer higher return potential.

While you may have many choices in financial providers, Fidelity is highly qualified to offer alternative investment opportunities for a number of reasons:

• Proven track record. Trusted by millions of investors for over 75 years, Fidelity has been the market leader in active and passive asset management, powered by a research-driven, outcome-oriented culture.
• Deep experience. Our dedicated and experienced team conduct deep research of public and private assets across a broad array of asset classes in an effort to uncover attractive investment opportunities.
• A wide range of investment choices. We offer alternative investments alongside a wide range of investments, ensuring that alternatives play an important role in a fully diversified portfolio that also includes traditional asset classes. Fidelity offers specialized capabilities across private equity, private credit, real assets, liquid alternatives, and digital assets.
• Opportunities to grow knowledge. From insightful articles and videos, to conversations with product specialists or advisors, Fidelity is dedicated to helping investors understand the strategies as well as the potential risks and rewards of investing in alternatives.
• One platform to invest and monitor. We offer customers a platform to manage their entire investment portfolio, so you can monitor your growth across all of your investments, from alternatives to stocks to bonds to CDs and cash.