Frequently asked questions about alternative investments

Alternative investments, also known as "alternatives," 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.

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 you can sell an investment. Many alternative investments can be subject to a "lock-up period" of a number of years, during which the investment cannot be sold. Certain funds have "intermittent liquidity," which means that they may be able to be redeemed during tender or repurchase windows. 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 1099 form 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 since 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 market alternatives generally have higher minimum investments when compared to semi-liquid/liquid alternatives and traditional investments which typically have lower or no minimum investment requirement.

Public markets are shrinking, with the number of publicly traded companies declining by more than 40% over the last 25 years.* 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, like stocks and bonds, or traditional "buy and hold strategies," cannot, making them more appealing to sophisticated investors. Alternatives often seek a low correlation to traditional assets, meaning they tend to respond differently to various market conditions, which could improve a portfolio's diversification, as well as the ability to help manage risk. For example—some strategies, such as middle market direct lending or real assets, may better weather economic conditions like inflation than traditional assets. In addition, although alternative investments may sometimes come with higher risk than traditional investments, they may also offer higher return potential.

Liquidity refers to how easily you can sell an investment. Alternative investments are offered in a range of liquidity levels, where your ability to sell or redeem an investment can be limited. The liquidity of an investment can be considered across two dimensions—the liquidity of the fund (i.e., ability to sell) and the liquidity of the underlying assets within the fund. It is important for you to understand a fund’s liquidity terms and risks before investing.

• Liquid alternatives
  Liquid alternatives usually invest in securities that primarily trade in public markets. Structured as ETFs and mutual funds, they are valued on a daily basis and can be sold at your discretion based on the current NAV or market price.
• Intermittent liquidity alternatives
  These types of funds may offer share repurchase programs that allow you to redeem a portion of your investment, often known as tender windows or repurchase offers. The key differentiator of intermittently liquid funds is that typically investors can only sell their shares back to the fund periodically, on a specified redemption schedule and only at specified intervals. However, in exchange for limited liquidity, these funds may offer the potential for higher returns, referred to as an "illiquidity premium."
• Illiquid funds
  These funds invest in assets through private market transactions. Illiquid funds may also be subject to a "lock-up period," during which time the investment cannot be sold, often for a period of many years. However, in exchange for tying up capital for longer periods of time, illiquid alternatives typically offer the potential for higher returns, referred to as an "illiquidity premium."

Liquidity is important as you consider your overall portfolio and planning, including any potential liquidity needs during the time your investment may be locked up, your household financial situation, your emergency funds, investment time horizon, and your comfort with risk. Before investing in a fund, please review the risk disclosures and liquidity terms, which are described in each fund's prospectus or other offering documents.

At one time, this may have been true. But over time, access to alternative investments has increased significantly, allowing more individual investors to pursue some of these types of investment opportunities.

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, private equity investors typically need to hold an investment for multiple years to gain value before exiting 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. This includes direct lending, whereby investments are originated or negotiated privately between borrowers and investors, are not traded in public markets, and are often composed of higher-yielding securities. The borrowers are often mid-sized 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 and currencies, 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 other crypto tokens and are designed to work as mediums of exchange that are stored on a decentralized ledger known as a blockchain.

In addition to investor eligibility guidelines (for private market alternatives, they include Accredited Investor or Qualified Purchaser eligibility levels), each fund comes with its own risks, considerations, and requirements related to investor suitability. As it relates to each individual fund offering, refer to the fund documentation for specifics on risks and eligibility.

In general, you should consider things such as:

• Comfort with risk and ability to withstand changes to the value of an investment
• Your individual goals and time horizon
• Specific cash flow needs and liquidity concerns
• Overall investment goals and how the remainder of one's portfolio is constructed
• Investment knowledge and experience

A tender window (or repurchase period) is a feature of many intermittent liquidity funds during which the fund offers to repurchase a set number of shares. During this period, investors can submit a request for the fund to redeem either a portion of or all of their shares. This request will be satisfied at the fund's discretion.

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. For over 75 years, Fidelity has continued to be a market leader in active and passive asset management, powered by a research-driven, outcome-oriented culture.
• Deep experience. Our dedicated and experienced alternative investment teams 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, risk and potential rewards of alternative investing.
• 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.

Fidelity offers alternative investments in a range of asset classes including private equity, private credit, core real estate and digital assets, as well as a number of liquid alternatives. Keep in mind that alternative investment opportunities at Fidelity can change over time.

Private market alternative investments (sometimes known as "alternatives in private markets," "private assets," "private funds," "private placements," or "private alternatives") are non-public alternative investments offered privately to a limited number of qualified investors. Private market alternatives are offered across several asset classes, such as private equity, private credit and real assets. Typically, each asset class may help you pursue one or more strategic objectives, like capital appreciation, diversification, income generation or managing risk. Here are some key considerations when exploring private investments, such as private placements:

• Unique investments. Because these types of alternative investments often invest in private markets or pursue unique investment opportunities, there may be increased risk for certain strategies, although investors taking on that risk may be compensated by higher reward potential.
• Liquidity limitations. Some private market alternative investments are less liquid than traditional investments, which means investors may have no access to the money they've invested, or any potential profits, often for a period of many years. This is often referred to as a “lock-up period." In cases like tender offer funds or intermittent liquidity funds, there may be limited windows during which investors can purchase or redeem shares.
• Illiquidity premium. In exchange for tying up capital for longer periods of time, illiquid alternatives typically offer the potential for higher returns, referred to as the "illiquidity premium."
• Performance monitoring. It can be more difficult to evaluate performance than traditional investments, as the assets held by the funds are valued far less frequently and may have limited or no past performance data. Also, as private investments, they do not have the same financial disclosure requirements as liquid alternatives.

When investing in private market alternatives, investors are typically required to meet an Accredited Investor or Qualified Purchaser eligibility criteria—this standard may vary from fund to fund, and investors must attest that they meet at least one of the definitions in writing in order to be eligible to invest in the fund (along with other suitability requirements). Keep in mind that Fidelity may not have alternative investments available for your specific eligibility level at any given time, so these guidelines are noted for alternatives in general.

Accredited Investor

• An individual with $1,000,000 or more in net worth, not including the value of their primary residence (either as an individual or jointly, with a spouse or spousal equivalent)
• An individual with $200,000 or more in income or have joint income of $300,000 or more with your spouse or spousal equivalent in each of the two most recent calendar years (and a reasonable expectation of the same income level in the current year)
• A trust with $5,000,000 or more in total assets and whose purchase is direct by a person with knowledge and experience to be capable of evaluating the merits and risks of investing in the in the Fund
• A revocable trust with an Accredited Investor as the grantor

Qualified Purchaser

• An individual who alone or with that person's spousal equivalent, owns at least $5,000,000 in investments
• An individual or entity that owns or invests $25,000,000 or more
• A revocable trust with a grantor that has $5,000,000 or more in investments
• A corporation, limited liability company, or partnership, whose securities are beneficially owned exclusively by Qualified Purchasers
• An entity that owns $5,000,000 or more in net investments and that is owned directly or indirectly by or for two or more natural persons who are related as siblings or spouses (including former spouses) or direct lineal descendants by birth or adoption
• Any trust not covered by the foregoing definitions and that was not formed for the specific purpose of acquiring the securities offered as to which the trustee (or other person authorized to make decisions with respect to the trust), and each settlor or other person who has contributed assets to the trust, is a Qualified Purchaser

Yes. Many alternatives accessing public markets, such as ETFs and mutual funds, use a standard 1099 form to report income for tax purposes. However, some alts may use a different or more complex tax form. This in turn can delay or complicate tax filing, particularly since 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 that the taxpayer apply for a tax filing extension.

Generally, private investments are subject to securities laws but do not have to be registered with the SEC, as long as they conform to certain regulatory exemptions. These exemptions prevent general solicitation or advertising to market the private investment.

Different funds report on fund performance in different time increments. Funds may provide reporting at intervals less frequent than mutual funds, depending on the type of fund. Investors should expect to receive information that may include performance measures such as net asset value (NAV), internal rate of return (IRR), net multiple (total value of distributions and NAV divided by total contributions), or net return.

A limited partnership (LP) is one possible way an alternative investment can be structured. It consists of a general partner (GP), who's responsible for the day-to-day management of the fund, and investors in the fund, who serve as its limited partners, often referred to as "LPs." The general partner is responsible for making investment decisions related to the fund, soliciting subscriptions to the fund to potential investors, determining the status of any subscription requests, and issuing any capital calls.

Private market alternative investments are purchased through a process called a subscription, which is an agreement between the fund sponsor and the investor. As part of this agreement, the investor commits to investing a specific amount of money. These commitments may be invested at the time of subscription or called over time.

In a private fund operating as a general partnership, the fund manager or general partner will announce a "close date," which represents the end of a fundraising period during which the fund solicits limited partners. Once the close date has passed, investors will receive a "capital call," or a request for funds. Note that some funds may have multiple close dates.

A capital call is a request by a fund manager or general partner to collect capital from its committed investors. A potential aspect of the subscription, or the agreement in a private investment, is for the client to provide some of the promised money up front— the paid-in capital—with the balance provided upon request once the fund manager issues a capital call. Capital calls may be issued on a schedule, or whenever the fund manager requires those funds for the purpose of making investments.

A fund manager or general partner, having identified opportunities in which to invest, will begin putting investors' money to work during the "investment period." The money will remain invested throughout this period, which will vary depending on the nature of the offering and the nature of the target investments. Note that during this time, investors in a private fund will not have access to the capital they've committed unless the fund permits withdrawal of all or a portion of an investment after a prescribed period of time as noted in the fund's offering documents.

At some point during the investment period, the fund manager or general partner may choose to liquidate investments in the fund, at which time capital will be returned to investors. The amount received will depend on the amount of the initial investment and the profitability of any investments made by the fund. Please note that the ability to liquidate any investment is dependent on market conditions, the performance of the fund, and is not guaranteed.

Fidelity customers who want to learn how to invest in private market alternatives are encouraged to schedule an appointment to confirm their eligibility, get answers to their questions and if appropriate, gain access to private market alternative investment opportunities.

Liquid alternatives seek to enhance returns, diversify and/or provide risk mitigation by investing in public markets such as equities, fixed income, commodities and currencies, or in derivatives tied to the performance of those markets. 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. Liquid alternatives are typically offered in liquid structures such as mutual funds and ETFs. They pursue a range of strategies, such as long-short equity, relative value, options-based strategies, and global macro strategies.

At Fidelity, you can purchase a variety of liquid alternatives on Fidelity.com using the Buy button on a specific fund page. Note that for certain funds you may need to review a designated investment agreement and attest that you are an experienced investor who understands the risks that come with that investment.

Liquid alternatives can be used to pursue different investment objectives, including return enhancement, portfolio diversification, and/or risk management. Their returns generally have low correlation to broad movements in the stock and bond markets, and so liquid alternatives can offer investors a way to complement their exposure to those traditional markets.

There are a few ways to search for liquid alternatives on Fidelity.com. From the fund screener use the dropdown menu on the left entitled Asset Class and Category. If you’re specifically looking for liquid alternatives managed by Fidelity, use the Asset Class and Category dropdown and select Expand All, so you can see all the Morningstar^® categories. You can then filter by sub-asset class of alternatives (i.e. Digital Market Neutral, Event Driven, etc.). Then, under Key Criteria, select Fidelity Funds.

You can also find liquid alternatives structured as Exchange Traded Funds (ETFs) using the ETF Screener. On filtering the menu to the left, select Basic ETF/ETP Facts and then Asset Class. Within Asset Class, choose Alternative. If you want to see the screen to prioritize ETFs offered by Fidelity, select the Fidelity icon at the top of the result table.

Alternatives may have fee structures that differ from traditional investments, so it may take a deeper investigation to understand what you may be paying in fees. These structures may result in higher costs for investors. There are multiple types of fees associated with alternative investments. Here's a list of some common ones. Note that not every type of alternative investment may be subject to every type of fee listed here and there may be others not listed here that could apply.

Fees that compensate the fund manager

• Management Fee: Fee paid to the fund manager for making investment decisions regarding the fund. Fees are typically calculated as a percentage of assets under management and are charged on an annual basis.
• Performance Fee (or Incentive Fee or Carried Interest): Fee paid to the fund manager to reward performance. Typically, this fee is charged as a percentage of the profits earned.

Fees to pay for fund's administration/operating expenses

• Administration Fee (or Service Fee): Some funds may charge an administrative fee separately from the management fee to cover legal, accounting, and other operating expenses. This fee is based on assets under management.
• Redemption Fees: Fee charged when an investor exits or withdraws money from the investment, especially if the withdrawal occurs before a specified period.

Additional fees may be applicable, including subscription or upfront fees, commitment fees, exit fees, due diligence fees, brokerage and transaction fees, and other miscellaneous fees. For a list of the specific fees and expenses associated with any particular fund, please review the offering documents for that fund.

When deciding on the type of account that you'll use as a source of funding or to hold an alternative investment, there are a few things to consider:

1. The fund itself may have rules, which will differ from fund to fund, as to which type of account registration can be used. There may also be limitations pertaining to commitments made with certain registration types for the fund.
2. Your decision on the type of account to select will depend on your goals, financial plan, liquidity needs, tax considerations, and other factors.

• Common account types include but are not limited to individual brokerage accounts, joint brokerage accounts, IRAs, trusts, and other business/LLC accounts.

Yes. Many alternatives, such as ETFs and mutual funds, offer a standard 1099 form tax reporting taxable income, however some alts may offer different or more complex tax reporting. This in turn can delay or complicate tax filing, particularly since 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.

In addition, there may be tax considerations associated with the account you use as a funding source or if you choose to liquidate an existing investment when funding your investment.

Alternative investments are not for everyone. Each investment comes with its own unique risks. Liquid alternatives and private market alternatives each come with their own risks including some common considerations that every investor should be aware of:

In addition, there may be tax considerations associated with the account you use as a funding source or if you choose to liquidate an existing investment when funding your investment.

• High investment minimums. Some alternatives require a significant minimum investment.
• Complexity. Evaluating alternative investment opportunities is complex. A high degree of investment analysis may be required before investing.
• Unique investments. Every alternative investment opportunity is different. Each alternative investment opportunity has a distinct set of risk and return objectives.
• Liquidity limitations. Some private market alternative investments are less liquid than traditional investments, which means investors may have little to no access to the money they've invested, or any potential profits, for years.
• Fees. Alternative investments are subject to unique regulatory requirements. Although they're regulated by the Securities and Exchange Commission (SEC), they don't necessarily have to be registered with the SEC.
• Regulatory requirements. Some alternatives have fee structures that differ from traditional investments, so it may take a deeper investigation to understand what you may be paying in fees. These fee structures may also result in higher costs.
• Taxes. Some investments require tax reporting related to alternatives, such as K-1s, which arrive later than other types of tax forms, and can make filing income taxes more complex.
• Monitoring. Monitoring financial performance of alternatives can be more complex than traditional investments. It may be difficult to determine the current market value of an alternative asset; and there may be limited historical risk and return data. Past performance is no guarantee of future results.
• Leverage Risk. Leverage in investing is essentially when an investment manager uses borrowed money to invest. This could have a positive impact on the potential return due to increased investment power, but also comes with the risk of exacerbating losses in times of market downturns. It's important to note that as an investor, you cannot lose more than what you have invested for capital.

For a list of risk factors associated with a particular fund, please see that fund's offering documents.

Fidelity customers who want to learn how to invest in private market alternatives are encouraged to schedule an appointment to confirm their eligibility, get answers to their questions and if appropriate, gain access to private market alternative investment opportunities.

There are a few ways to search for liquid alternatives on Fidelity.com. From the fund screener use the dropdown menu on the left entitled Asset Class and Category. If you’re specifically looking for liquid alternatives managed by Fidelity, use the Asset Class and Category dropdown and select Expand All, so you can see all the Morningstar^® categories. You can then filter by sub-asset class of alternatives (i.e. Digital Market Neutral, Event Driven, etc.). Then, under Key Criteria, select Fidelity Funds.

You can also find liquid alternatives structured as Exchange Traded Funds (ETFs) using the ETF Screener. On filtering the menu to the left, select Basic ETF/ETP Facts and then Asset Class. Within Asset Class, choose Alternative. If you want to see the screen to prioritize ETFs offered by Fidelity, select the Fidelity icon at the top of the result table.