Alts Essentials

Investing involves risk, including the possible loss of principal.

This material does not take into account a client’s particular investment objectives, financial situations, or needs and is not intended as a recommendation, offer, or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their differences, speak with your advisor.

Bank of America, Merrill, their affiliates and advisors do not provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.

This material is provided for informational purposes only by the Investment Solutions Group (ISG) Alternative Investments group and is not a publication of BofA Global Research. The views expressed are those of ISG, are developed in consultation with the Chief Investment Office (CIO) and are subject to change. While some of the information contained in this primer may draw upon research by BofA Global Research, this material is neither reviewed nor approved by BofA Global Research.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation.

All recommendations must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be in the best interest of all investors.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets. Investments have varying degrees of risk.

Investments in private markets involve a high degree of risk and therefore should only be undertaken by qualified investors whose financial resources are sufficient to enable them to assume these risks and to bear the loss of all or part of their investment. Investments in private markets include significant risks not otherwise present in public market investments. Furthermore, private market investors are afforded less regulatory protections than investors in registered public securities.

Investments in private credit involve a high degree of risk, while the investment may be subject to many of the risks associated with traditional fixed income investments such as the credit quality of individual issuers, possible prepayments, economic developments and yield fluctuations due to changes in interest rates, they also carry more risk than traditional loans because borrowers are often below investment grade, meaning there is a higher chance they will have trouble repaying the debt and therefore should only be undertaken by qualified investors whose financial resources are sufficient to enable them to assume these risks and to bear the loss of all or part of their investment. Traditionally, non-investment grade borrowers are graded as BBB or lower by credit ratings firms like Standard & Poor’s or Moody’s. Because of this low rating, investors usually demand a higher interest rate to offset the risk of default. Investments in private credit include significant risks not otherwise present in public market investments. Furthermore, private credit investors are afforded less regulatory protections than investors in registered public securities. Investments in Infrastructure Assets will be subject to risks incidental to owning and operating infrastructure projects, including risks associated with the general economic climate, geographic or market concentration, government regulations and fluctuations in interest rates. The industries targeted for investment may be highly regulated by governmental agencies. Such regulations may impact an investor’s ability to acquire, dispose of and/or manage investments.

Investing in real estate securities can be subject to risks, including fluctuations in value of properties, the effect of economic conditions on real estate values, changes in interest rates, and other risks.

When considering the appropriateness of mutual funds or Alternative Investments, please be aware that there are significant differences between these investments which will cause their investment portfolios, performance, tax treatment and other factors to differ. These differences include the types, availability and diversity of securities that can be purchased, economies of scale, regulations and other factors applicable to their management.

Non-Traditional Mutual Funds (“NTMFs”) are mutual funds and exchange-traded funds that are classified as Alternative Investments because their principal investment strategies utilize Alternative Investment strategies or provide for alternative asset exposure as the means to meet their investment objectives. Though the portfolio holdings of NTMFs are generally made up of stocks and bonds, NTMFs may also hold other asset classes and may use short selling, leverage and derivatives. While the strategies employed by NTMFs are often used by hedge funds and other Alternative Investment vehicles, unlike hedge funds, NTMFs are registered with the SEC and thus subject to a more structured regulatory regime and offer lower initial and subsequent investment minimums, along with daily pricing and liquidity. While these investment vehicles can offer diversification within a relatively liquid and accessible structure, it is absolutely essential to understand that because of this structure, NTMFs may not have the same type of non-market returns as other investments classified as Alternative Investments (such as hedge funds) and thus may serve as an imperfect substitute for such other investment vehicles.

The risk characteristics of NTMFs can be similar to those generally associated with traditional Alternative Investment products (such as hedge funds). No assurance can be given that the investment objectives of any particular Alternative Investment will be achieved. Like any investment, an investor can lose all or a substantial amount of his or her investment. In addition to the foregoing risks, each Alternative Investment vehicle is subject to its own varying degrees of strategy-specific or other risks. Whether a particular investment meets the investment objectives and risk parameters of any particular client must be determined case by case. You must carefully review the prospectus or offering materials for any particular fund/pooled vehicle and consider your ability to bear these risks before any decision to invest.

There may be conflicts of interest relating to a mutual fund(s) or an Alternative Investment product(s) and its service providers, including Bank of America Corporation, and its affiliates, who are engaged in businesses and have clear interests other than that of managing, distributing and otherwise providing services to the mutual fund or Alternative Investment. These activities and interests include potential multiple advisory, transactional and financial and other interests in securities and instruments that may be purchased or sold by the mutual fund or Alternative Investment, or in other investment vehicles that may purchase or sell such securities and instruments. These are considerations of which investors in the mutual fund or Alternative Investment should be aware.