Stocks, bonds and cash are the most commonly known traditional investments. Alternative investments fall outside of the definition of long-only, publicly traded investments in stocks, bonds, and cash. In other words, they are alternatives to long-only positions in stocks, bonds, and cash. The usage of the terms traditional and alternatives should not be construed to imply that alternatives are necessarily uncommon and/or relatively recent additions to the investment universe. Alternative investments include investments in assets such as real estate and commodities, which are arguably two of the oldest investment classes.

Alternative investments also include non-traditional approaches to investing within special vehicles, such as private equity funds, hedge funds, and some exchange traded funds (ETFs). Alternative investments thus encompass any non-traditional investments of financial assets such as hedge funds, private funds, venture capital, real assets, commodities and other assets.

An introduction to alternative investments analysis study seeks to answer the question: what is alternative investment? This chapter outlines five different ways of distinguishing alternative investments from traditional investments. These approaches include:

1. By exclusion – thus alternative investment is any investment not in a long position into the traditional investments
2. By Inclusion – An explicit selection of the investments to form alternative investments
3. Structures – essential concepts in understanding the nature of an investment
4. By return characteristics
5. By methods of analysis