What is an Alternative Fixed Income Investment

Alternative fixed income investments are a type of investment that offers unique strategies for generating income and managing risk. These types of investments can include, but are not limited to, direct lending, private credit, and real estate debt. Fixed income investments have become very popular for individual investors because of the increasing returns due to higher interest rates.   

One key feature of alternative fixed income investments is that they are typically not traded on public markets like traditional fixed income assets such as bonds or CDs. Instead, these investments are offered by private firms or specialized investment managers who use their expertise to invest in unique opportunities that may not be available to the general public. For this reason, many of the investments are limited to accredited investors (see our article on accredited investors) or offered on peer-to-peer or crowdfunding platforms. 

Direct lending is one example of an alternative fixed income investment. In this strategy, investors lend money directly to businesses or other entities in need of capital. This type of investment has become increasingly popular in recent years due to the tightening of regulations on traditional banks and the growth of online lending platforms. Direct lending can offer investors higher yields than traditional fixed income investments, but also carries more risk. 

Private credit is another example of an alternative fixed income investment. Private credit refers to debt investments made in private companies or projects that are not publicly traded. These investments can include mezzanine debt, senior secured debt, and other structured finance products. Private credit investments can offer diversification benefits to a portfolio, but also carry higher risk than traditional fixed income investments. 

Real estate debt is yet another example of an alternative fixed income investment. Real estate debt refers to debt secured on real estate, such as mortgages, construction loans, or bridge financing. These investments can offer attractive returns and diversification benefits to a portfolio. They are also popular as a fixed income investment because offer consistent monthly cash flow.  

Many fixed income investments were once only available for institutional investors due to their complexity and lack of transparency, especially within real estate. However, the growing popularity of private real estate investment trusts, also referred to as a private REIT, has allowed individual investors the ability to participate in this type of investment. It has done this by pooling investor capital and investing that capital in a portfolio of assets, such as mortgages, apartment buildings and commercial buildings, to name a few. Additionally, they offer attractive tax advantages that other fixed income investments do not offer. 

The other reason the REIT has become popular is the higher returns. Take for example the mortgage REIT, commonly referred to as an mREIT, is an investment in a diversified portfolio of mortgages. Investors earn income from the payments made by the borrowers on the underlying loans. As interest rates go up, so do the rates on the loans within the portfolio of mortgages. This results in higher income earned by the investor. That is why the mREIT is one of the biggest beneficiaries of higher interest rates. 

In conclusion, alternative fixed income investments can provide unique opportunities for generating income and managing risk. However, investors should carefully evaluate their goals and risk tolerance before investing in these types of investments. It is also important to work with a financial professional who can provide guidance on building a diversified portfolio that includes traditional and alternative fixed income investments. 

About TaliMar Income Fund I

Brock VandenBerg has been investing in short term real estate loans for over 20 years. During that time, he established TaliMar Financial, one of the leading private lending companies serving the residential and commercial real estate market. Mr. VandenBerg also invests in the private real estate debt market on behalf of high-net-worth investors, family offices, and institutional partners through his private mortgage REIT, TaliMar Income Fund I.

Prior to establishing TaliMar Financial, Mr. VandenBerg spent two years working with the Federal Deposit Insurance Corporation (FDIC) managing the closure of failing banks and the sale of their loan portfolios. His experience at the FDIC helped shape the strategy he uses today to minimize risk while maximizing returns for his investors.