we have talked about several important investing ideas:
- Diversification
- Correlation
- Emotional investing mistakes
- Why sophisticated investors often look beyond traditional stocks and bonds
Now we ask another practical question: What does a non-correlated investment actually look like? In this chapter, we will discuss a real-world example, the medium-term income (MTI) fund.
The goal here is not to convince you to invest in any specific fund. Instead, the goal is to help you understand:
- How this type of investment works
- Why some investors use it
- Where it is non-correlated
- Where it might fit inside a broader portfolio
The Problem Many Investors Face
Let’s start with a very common situation. Imagine someone has cash sitting in a savings account, a money market account, or a certificate of deposit (CD).
Maybe they recently sold a property. Maybe they sold a business. Maybe they are waiting for a future opportunity. They want:
- Some income
- Reasonable stability and capital protection
- Lower exposure to stock market swings
But they also notice a problem. Traditional “safe” investments often produce low returns. For example, savings accounts and CDs usually offer modest interest rates.
At the same time, many investors do not feel comfortable putting all their money into volatile stock markets. Especially after experiencing recessions, inflation spikes, or major market declines.
That creates a gap. Investors begin asking: “Is there a middle ground between low-yield cash accounts and highly volatile public markets?” That is where some alternative income investments enter the picture.
What Is a Medium-Term Income Fund?
Many investors know a Medium-Term Income Fund, or MTI fund, as a mutual fund or ETF that invests primarily in fixed income securities. Similarly, a private equity MTI fund is designed to produce regular income while trying to reduce correlation with traditional markets.
For example, the private equity MTI fund could focus on medical receivables. That sounds complicated at first, but the underlying idea is simple.
What Is a Medical Receivable?
A receivable is money owed to a business. For example, if a doctor treats a patient today but does not receive payment for several months, the unpaid bill becomes receivable. The doctor is waiting to get paid by the insurance company (not the patient).
In personal injury medicine, payment delays can sometimes last:
many months, or even several years.
Meanwhile, the medical provider still has expenses. They still must pay:
- Employees
- Rent
- Equipment costs
- Insurance
- Operating expenses
The medical provider faces a problem. They eventually receive payment from the insurance company, but they need cash now.
How a Fund Fits In
This is where specialty financing enters the picture. An MTI-type structure may provide funding to medical providers in exchange for rights connected to future insurance receivables.
In simple terms, the fund helps doctors receive cash sooner.
The fund then participates in the future collection process from the insurance companies. This is commonly referred to as accounts receivable factoring; here it is applied to medical facilities and often gets the hybrid name of medical receivables, or medical factoring.
The exact legal structures can vary. But the broader economic idea is providing liquidity to businesses that are waiting for future payments. Liquidity provides access to cash when the business needs it, which is now.
Why This May Be Less Correlated
Now we arrive at an important question: Why might this type of investment behave differently from stocks or real estate? The answer is because the investment depends on different economic drivers.
A technology stock may rise or fall based on:
- Earnings expectations
- Investor sentiment
- Stock market momentum
But medical receivable factoring depends more on:
- Legal claims
- Collections
- Insurance payments
- Underwriting quality
- Operational systems
That does not mean the investment has no risk. Every investment has risk. But it may react differently than traditional public markets.
People get in car accidents requiring medical care on a daily basis, regardless of what happens in the stock and real estate markets. That is the key idea.
Why Investors Sometimes Like Income Funds
Many investors eventually reach a point where they care less about chasing maximum growth. Instead, they begin prioritizing:
- Stability
- Cash flow
- Predictability
This often happens later in life, after selling a business, after building substantial wealth, or after experiencing painful market volatility.
Income-focused investments can appeal to these investors because they may provide regular distributions, reduce emotional stress, and potentially smooth portfolio behavior. A distribution simply means money paid out to investors. In this MTI example, distributions are quarterly.
Understanding Target Returns
Like any investment, target annual returns for private equity MTI funds vary with risk. For instance, the returns of the medical receivables example are in the range of approximately 11% to 13%, depending on investment size. It is important to understand the difference between:
- Target returns
- Projected returns
- Guaranteed returns
No legitimate investment can guarantee returns, but they should have an initial target return. Markets change. Economic conditions change. That’s where tracking updated projected returns is important—Businesses can fail.
Responsible investors should always understand that target and projected returns are estimates, not promises.
Still, many investors compare alternative income investments against traditional options like CDs, money markets, or bond funds—Especially when they are searching for medium-term income opportunities.
Why Diversification Inside the Fund Itself Matters
One major risk in lending is concentration. If too much money depends on one borrower, one industry, or one transaction, the investment becomes fragile. That is why diversification inside a fund matters.
The medical receivables MTI example has exposure across more than 25,000 individual invoices. That matters, because problems in one invoice may have limited impact on the overall portfolio. This is similar to the reasoning behind banks issuing many loans instead of one giant loan. Diversification reduces dependence on any single outcome.
Risk Mitigation
The private equity MTI example has several risk management approaches, including:
- Underwriting
- Discounted purchases
- Diversification
- Contractual protections
Risk mitigation involves identifying specific factors that offset risk to reduce potential losses. Good investors constantly ask: “What could go wrong?” and “What systems exist to reduce damage if problems occur?”
Sophisticated investing is usually less about blind optimism and more about careful risk management.
Why Due Diligence Matters
Due diligence is especially important in private investing.
Private investments are less regulated than public markets, so investors often need to do more homework. That may include reviewing:
- Financial statements
- Legal structures
- Management experience
- Operational systems
- Outside audits
- Historical performance
Smart investors do not simply ask, “How high is the return?” They also ask:
- How does the business actually work?
- What are the risks?
- What happens during a recession?
- How is downside risk managed?
- How experienced are those running the operation?
Those questions matter enormously.
Why Many Investors Have Never Seen Investments Like This
Many investors spend their entire financial lives inside retirement accounts, mutual funds, ETFs, and publicly traded stocks. That is not necessarily wrong. But it means they may never encounter specialized alternative investments.
Private investments are often less advertised, harder to access, more complicated, and limited to accredited investors.
An accredited investor is generally someone who meets certain income or net worth requirements under securities laws. The rules exist partly because private investments can involve greater complexity and lower liquidity.
Why Some Investors Use These Funds
Different investors use income funds for different reasons. Some want:
- Portfolio diversification
- Lower correlation to stocks
- Additional passive income
Passive income is income earned without daily active work.
Other investors simply want to reduce stress. They may already have enough growth-oriented investments. Now they want:
- Steadier cash flow
- Reduced volatility
- Less emotional exposure to market swings
That shift often happens naturally as investors age. When someone is 25 years old, they may prioritize aggressive growth. When someone is 60 years old, they may care more about preserving capital, generating income, and sleeping well at night.
No Investment Is Perfect
It is important to stay balanced. Alternative income funds still involve risks. Some risks may include:
- Illiquidity
- Operational failures
- Economic downturns
- Collection problems
- Poor underwriting
- Management mistakes
Investors should never assume an investment is safe simply because it is private. Private investments require careful evaluation. In fact, private investments are often riskier than public stocks. That is why education and due diligence matter. Always consult with your financial advisors.
Building a Portfolio Like a Business Owner
One interesting thing happens as investors gain experience: They begin thinking less like day traders and more like business owners. Instead of obsessing over daily price movements, they begin focusing on cash flow, systems, contracts, operations and long-term durability.
That mindset shift is important because durable wealth is often built through patience, discipline and consistent cash flow, not constant excitement.
Final Thoughts
Private equity Medium-Term Income funds are only one example of a non-correlated alternative investment. They are not appropriate for every investor. But they help illustrate several important ideas:
- Different investments can respond differently to economic conditions
- Diversification matters
- Cash flow matters
- Portfolio structure matters
The most sophisticated investors are often not searching for the single hottest investment. Instead, they are trying to build portfolios that:
- Survive difficult markets
- Protect capital
- Reduce emotional decision-making
- Generate durable income
- Create long-term resilience
That is a very different approach from chasing headlines. And over long periods of time, it is often the calmer, more disciplined investors who build the most durable wealth.
