Fundraising for alternative assets has had a strong start in 2024, according to a recent report. The paper also hints that this year’s investments might be greater than those of 2023. With alts becoming more and more popular, it can be helpful to properly understand their features.

What are the key features of alternative investments?

We’ll explore four key features and their benefits: diversification, access to unique opportunities, low correlation to traditional assets, and high return potential.

Key Feature 1: Diversification

Diversification aims to reduce risk by spreading investments across different asset classes. A recent survey found that 39% of investors cited diversification as the primary reason for investing in alts, and it’s easy to see why. Diversifying with alternative investments can minimize exposure to any single asset’s performance. Suppose you invest in stocks and bonds, real estate and private equity. If one sector underperforms, the others can balance the overall performance of your portfolio.

Key Feature 2: Access to Unique Opportunities

Alternative investments can give you access to assets and opportunities that aren’t usually available in public markets. Examples include investments in start-ups, private companies, or rare collectibles. A sealed 1996 ‘Super Mario 64’ game sold for $1.56 million in 2022, highlighting the growing interest in collectibles as alternative assets.

Key Feature 3: Lower Correlation with Traditional Markets

Alternative investments don’t follow the same performance patterns as traditional stock and bond markets. While traditional markets are affected by interest rates and corporate earnings, alts are influenced by different factors – like real estate trends or commodity prices. As a result, your portfolio can remain stable even when traditional markets are volatile – like they are right now.

Key Feature 4: Potential for Higher Returns

Alternative investments can offer you higher returns compared to traditional investments. According to a 2023 JP Morgan report, portfolios with 30% alternatives, 30% bonds, and 40% equities demonstrated higher annualized returns than those relying more on traditional assets. While the potential for higher returns is appealing, it can come with risks. Thorough research and due diligence are important to mitigate these risks and ensure you invest wisely.

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