Guide to Alternative Investments: Glossary of Terms
1031 Exchange
A tax-deferral strategy under IRS Section 1031 that allows investors to defer capital gains taxes on the sale of real property by reinvesting proceeds into a “like-kind” replacement property.
721 Exchange
A tax-deferred transaction that allows property owners to contribute their real estate assets to an operating partnership (often an UPREIT) in exchange for partnership units, deferring capital gains taxes.
506(b)
A regulation under the SEC’s Regulation D that prohibits general solicitation or advertising but allows up to 35 non-accredited investors and unlimited accredited investors.
506(c)
A regulation under the SEC’s Regulation D that allows private offerings to be publicly advertised, but only accredited investors may invest and their status must be verified.
Accredited Investor
An individual or entity that meets specific financial criteria set by the SEC, including total income and net worth thresholds, enabling them to invest in private placements and other alternative investments.
Adviser / Advisor
A person or firm that provides advice and/or investment guidance. Largely used interchangeably, although “adviser” is the legal term in regulatory contexts (e.g., Investment Adviser Act of 1940).
Alternative Assets
Any asset class that falls outside of the traditional asset classes of stocks, bonds or certificates, such as real estate, private equity, private debt, interval funds, hedge funds, infrastructure, commodities, collectibles and much more.
Alternative Investments
Investment products that fall outside traditional public markets, including private equity, hedge funds, real estate, venture capital, and tangible assets.
Broker-Dealer
A firm or individual licensed to buy/sell securities on behalf of clients (broker) and for their own account (dealer), regulated by FINRA and the SEC.
Business Development Company (BDC)
An alternative investment fund that invests in small to mid-sized businesses, offering investors exposure to private debt and equity, often with high yield potential. At least 70% of the fund’s assets must be invested in eligible assets, such as U.S. -based companies with market values under $250 million, to qualify as a BDC.
Delaware Statutory Trust (DST)
A legal entity used for holding title to investment real estate, commonly used in 1031 exchanges to allow fractional ownership and passive management for investors.
Financial Advisers
General term for professionals who provide investment and financial planning advice, including brokers, RIAs, or dual-registered professionals.
Financial Planning
A comprehensive evaluation of an individual’s current and expected future financial state, using investment, tax, insurance and estate strategies to meet life goals.
Financial Technology (FinTech)
Technology-driven innovation in financial services, including platforms for investing, lending, robo-advising and alternative asset access.
Hybrid RIA
A financial firm or adviser operating as both a registered investment adviser (RIA) and a broker-dealer, offering both fee-based and commission-based services.
Interval Funds
A type of closed-end fund that periodically offers to buy back shares from investors at a price based on the fund’s Net Asset Value (NAV), typically on an annual, semi-annual or quarterly basis.
Investment Adviser
A person or firm providing investment recommendations or portfolio management services in return for a fee. The precise definition was established through the Investment Advisers Act of 1940. Also known as a financial adviser.
Investment Sponsor
A company or entity that creates and manages an alternative investment offering, typically handling raising capital, acquisitions, operations, and distributions. Also known as a general partner.
Investment Wholesaler
A representative who markets and attempts to sell alternative investment products to financial advisers and intermediaries, not directly to individual investors.
Net Asset Value (NAV)
The value of an investment fund’s assets minus liabilities, divided by the number of outstanding shares. It represents the per-share value of a fund or real estate investment trust (REIT).
Non-Traded REITs
A registered, open-end investment vehicle that owns and operates income-producing real estate, but is not listed on a public exchange and is, therefore, generally considered illiquid.
Opportunity Zone (OZ)
A designated economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.
Opportunity Zone Funds
Investment vehicles specifically structured to invest in opportunity zones, providing investors with potential capital gains tax deferral and elimination benefits.
Qualified Opportunity Zone Funds
Funds certified by the IRS that invest at least 90% of their assets in qualified opportunity zone property to qualify for tax incentives.
Private Placements
Securities offerings sold directly to a small group of accredited or institutional investors, exempt from SEC registration under Regulation D.
Private Equity
Investments in privately held companies, often through buyouts, venture capital, or growth capital, often through pooled capital managed by private equity firms.
Real Estate Investment Trust (REIT)
A company that owns or finances income-producing real estate, offering investors a way to invest in real estate without directly owning property. May be public or non-traded.
Registered Investment Adviser (RIA)
A firm or individual providing fee-based investment advice, registered with the SEC or state authorities and held to a fiduciary standard.
Registered Representative
A licensed individual authorized to buy and sell securities through a broker-dealer, typically earning commissions rather than advisory fees.
Tax-Deferred Investments
Investment strategies or products that allow taxes on earnings or gains to be postponed until a future date, such as 1031 exchanges or retirement accounts.
Tender Offer
A formal offer by a fund or sponsor to repurchase shares or interests from investors, often used in illiquid investments like private REITs or interval funds. Umbrella Partnership Real Estate Investment Trust (UPREIT): A structure allowing property owners to contribute assets to an operating partnership (OP) in exchange for OP units, which can later be converted into REIT shares.
Wealth Adviser
A financial professional who provides comprehensive financial planning and investment management services, often targeting high-net-worth individuals and families
Wealth Management
An approach to managing financial assets, including investment management, financial planning, tax planning, and estate planning. Wire House: A large, full-service brokerage firm with a network of financial advisers.
