The Investor's Guide to Vetting Alternative Assets

Investing with the intention of growing and diversifying a portfolio is something that helps to secure the quality of life you desire, but it also requires careful attention. Because there are many stories of well-meaning investors who end up losing their investment, we want to step back and provide some guidance. Rather than scare stories or sensationalist phrases, we want to offer proven, pragmatic advice so you know how to go about vetting alternative assets. 

What is an alternative asset?

Alternative assets don’t fall into traditional categories of things like bonds, cash, and stocks. They offer different risk-reward ratios and different potential for returns, but they do allow many people to invest in something they are passionate about. Real estate, commodities, and appreciating assets like cask whisky are all prime examples. Regardless of the specific nature of the alternative asset, it has to be thoroughly vetted. 

The importance of vetting alternative assets

Vetting is another name for due diligence, the process that every investor needs to go through to properly mitigate the financial risks involved. The vetting process involves the verification of all of the key details relating to the asset: what it is, where it is, how old it is, who currently owns it, etc. 

Without this key process, investors are unlikely to be able to detect instances of fraud or sophisticated investment scams. The focus is on gaining an accurate understanding of the asset so that both its current value and long-term appreciation potential are well understood. 

Have you received an unsolicited approach?

Someone contacting you out of the blue with a fantastic investment opportunity may sound like just the stroke of luck you need, but is it realistic? Offers from people you have never heard of and never contacted that ask you to share details or transfer money should be avoided at all costs. There is a difference between a fraudster cold emailing you and a legitimate business running a considered advertising campaign. 

Verify the asset you’re buying exists

Staying with the cask whisky example, you will need to have a Delivery Order to comprehensively verify the legitimacy of the investment. The Delivery Order verifies that the cask exists and contains the whisky you have bought. It will also include detailed information on where the cask is stored. If such a document is not forthcoming, this should immediately raise a red flag. 

Meet with your key contact

Putting a name to a face is important in the world of alternative investments, as it builds trust and gives you greater confidence in what you are investing in. Arranging to visit the storage facility so that you can verify the existence of the cask you have bought with your own eyes is a pragmatic next step to take. The more information the whisky specialists you are talking with give, the better. 

“Cask whisky is an exciting and unique asset, but as with everything, it’s important to go with your eyes fully open,” says Alphie Valentine, Co-founder of Hackstons, established whisky specialists who provide opportunities for both investment and consumption. Hackstons are renowned for treating every investment with 100% transparency and being extremely forthcoming with details. Their diligent approach ensures clear provenance that can be easily demonstrated, in turn verifying the value of the cask. 

Consider the fundamentals of the opportunity 

Having verified the casks and met the whisky expert, you may feel ready to invest, but it’s important to take your time. It’s at this stage that it is prudent to take a step back and ask yourself a few key questions: 

• Are you being offered a ‘guaranteed’ return? There is no such thing as a guarantee in the investment world, regardless of how tempting it may be to believe such claims. Anyone who tries to claim that there are guarantees in terms of return will often not have your best interests at heart.
• Are performance insights readily available? While there may not be guarantees, there are certainly track records. If insights show similar casks have appreciated by an amount that interests you, this is a positive sign.
• Are there public profiles you can see? Companies like Hackstons are established and have a clear public profile spread across multiple sites and platforms. In the past year, they have also opened a Hackstons retail store to add more presence, and they have just been shortlisted as a finalist for ‘Newcomer of the Year’ at the prestigious Drinks Retailing Awards. These public profiles, physical locations, and accolades can help provide a degree of social proof, alongside online reviews and testimonials.

Taking your time to ask yourself these three key questions will help you slow things down so that you can make an informed decision. The clearer your mind is at the point you decide whether or not to invest, the better. And if the person offering the opportunity tries to apply pressure and to rush you, this is a sign that you need to walk away. 

Final Thoughts 

By systematically working through the steps above, you will be able to properly assess the value of the alternative asset and mitigate the risks associated with investing in it. Exactly what you need to do when you want to diversify your investment portfolio the smart way.