There are numerous assets in which to invest your money, from real estate and private equity to precious metals and valuable collector’s items. These examples belong to a class of assets called alternative investments, which are outside the more conventional bonds, stocks, and cash. Despite their lucrative potential, nearly one-third of Americans recently polled are unfamiliar with alternative investing.
As a finance professional, you understand that while traditional investments work hard for your clients, they may want to expand or diversify their portfolios further. If so, alternative investments are worth looking into. Alternative investments are nothing new, but they have become more appealing to investors in recent years. Here are nine interesting statistics that underscore the exciting trend of alternative investments within personal finance.
1. The Global Alternative AUM Is Projected to Double
With a compound annual growth rate (CAGR) of 11.7%, the global assets under management (AUM) for alternative investments are projected to reach $23.21 trillion by 2026. This massive acceleration will be fueled by private equity and venture capital holdings.
2. Investors’ Alternative Investment Allocations Are Shifting
Real estate and hedge funds still lead the way for alternative investors. However, institutional investors are switching up their investment allocations. Between 2018 and 2022, they slammed the brakes on credit, then hit the gas on private equity and venture capital.
3. High Net Worth Investors Believe in Alternative Investments
The ultra-wealthy—those with a net worth of at least $30 million—can afford to invest in costly artwork, precious metals, and other collectibles. Therefore, it’s hardly surprising that they allocate 50 percent of their assets toward many alternative investments.
4. Alternative Investments Yield a Decade of Strong Returns
From 2012 to 2022, an alternative investment portfolio would have produced an average return on investment of nearly 9 percent. That compares favorably to the average 12 percent return that an S&P 500 would have generated over that same 10-year period.
5. The Investment Landscape Is Transitioning to Alternatives
In 2023, the Nasdaq reported that many investors and asset managers shifted to alternative investments in response to market volatility, high-interest rates, and low growth. Higher interest rates continue to influence private credit strategies, while both geopolitical turmoil and economic uncertainty fuel interest in hedge funds. In 2023, hedge funds only saw a return of 7.6 percent (compared to the S&P 500’s 24 percent return), but allocators expect this to rebound in 2024.
6. Alternative Investments Are Expected to Continue Growing
According to PwC, the total global AUM is projected to double by 2025 from 2016, and alternative investments will likely comprise 15 percent of the global investable market (about $21.1 trillion). PwC expects real estate, private equity, and private debt to fuel this growth.
7. Financial Advisors Lead More Investors into Alternatives
In 2023, financial advisors allocated 14.5 percent of their clients’ total portfolios to alternative investments, according to the Boston-based research firm Cerulli Associates. This firm expects alternative assets to comprise 17.5 percent of the average portfolio in 2024.
8. Passion-Driven Investors Are Likely to Invest in Alternatives
According to the financial services company Alto, 76 percent of all passion-driven investors reported holding alternative assets, compared to 65 percent of strategic (risk-reward profile) investors. Alto defines a passion-driven investor as someone who invests based on curiosity or excitement about a particular investment opportunity.
9. Change Is Necessary to Support this Revenue Growth
The Boston Consulting Group (BGC) estimates that profit growth in the asset management industry will drop from 10 percent to 5 percent. However, BGC also points out that asset managers can avoid this by cutting overall costs by 20 percent and shifting their revenue mix to generate 30 percent from higher-margin products.
BGC further advises firms to pursue high-growth alternative investments. This advice is sound since alternatives generated $190 billion in 2022, making up half the total revenue of firms offering alternative investment products. Moreover, BCG expects this momentum to continue over the next five years with a CAGR of 7 percent.
Weigh Out the Benefits of Alternative Investments
Alternative investments are not about quickly accumulating wealth. They require significant research and risk tolerance. However, clients can benefit from these unique assets with the guidance of a financial advisor who specializes in alternative investments.
Matthew is a seasoned researcher and writer with over five years of experience creating engaging SEO content. He is passionate about exploring new ideas and sharing his knowledge through writing. Matthew has a keen eye for detail and takes pride in producing content that is not only informative but also visually appealing. He constantly expands his skill set and stays up-to-date with the latest SEO trends to ensure that his content always performs well in search rankings. Matthew can be found reading, surfing, or experimenting with new recipes in the kitchen when he’s not writing.