Still relying on a 60/40 portfolio? You might be missing out.
A 2024 Forbes study revealed a surprising statistic: 73% of U.S. adults aged 30 to 65 have never explored alternative investment opportunities. That means nearly three-quarters of investors are still clinging to traditional financial instruments—stocks, bonds, and cash—while overlooking an expanding world of assets that could significantly boost returns and reduce risk.
So why are savvy investors increasingly turning to alternative investments?
Because alternative investments are no longer niche—they’re becoming central to sophisticated portfolio strategies. And the numbers prove it.
A Rapidly Expanding Universe of Alternatives
From hedge funds and private equity to real estate, commodities, and cryptocurrencies, the alternative investments sector is transforming global portfolios. According to PwC, alternative assets are projected to represent 15% of global assets under management by 2025, amounting to a staggering $21.1 trillion.
The growth is not accidental. After the 2008 global financial crisis, investors began shifting toward private markets and direct lending opportunities in pursuit of greater control, better returns, and insulation from public market volatility. In fact, Preqin reports that alternatives grew from $3.1 trillion in 2008 to over $10.2 trillion by 2019, and the trend continues.
What Makes Alternatives So Appealing?
While alternative assets vary widely, they tend to share a few key characteristics:
- Limited correlation to public markets – helping buffer against stock market volatility.
- Lower liquidity – meaning longer investment horizons, but also the potential for outsized returns.
- Higher barriers to entry – such as accreditation or capital minimums, which historically made them exclusive to institutional and high-net-worth investors.
- Unique risk-return profiles – ideal for tailoring to specific investment goals.
Alternatives are not traded on public exchanges. They often involve moderate regulatory oversight, complex valuations, and lock-up periods, but they can also offer unique advantages: inflation hedging, tax efficiency, and access to innovative sectors and early-stage companies.
The Key Players in Alternative Investing
Let’s break down a few leading alternative asset classes that are redefining modern portfolios:
Hedge Funds: Flexible Strategies for High Returns
Hedge funds use advanced strategies—from long-short equity to global macro and arbitrage—to deliver uncorrelated returns. While they charge premium fees (often “2 and 20”) and require investors to lock in capital for at least a year, they provide flexible, actively managed exposure to diverse sectors like healthcare, energy, and real estate.
Private Equity: Long-Term Value Creation
Private equity firms invest in private companies, fueling growth through buyouts, restructuring, or expansion capital. With investment horizons of 4 to 7 years, PE offers substantial long-term returns. The limited partnership structure—where fund managers (GPs) manage capital from investors (LPs)—provides transparency, control, and alignment of interests.
Venture Capital: Betting on the Future
Venture capital focuses on high-potential startups, often in tech or biotech. Unlike private equity, VCs invest in early-stage companies, helping them scale in exchange for equity. While risk is high, the reward can be transformative—think early investors in Uber, Airbnb, or OpenAI.
Real Estate: Tangible, Income-Generating Assets
From private property investments to REITs and mortgage-backed securities, real estate offers stable income, inflation protection, and low market correlation. Crowdfunding platforms and private debt vehicles have also democratized access to this historically illiquid asset.
Cryptocurrencies: Digital Frontier of Investing
Decentralized digital currencies like Bitcoin and Ethereum offer an alternative to fiat money and centralized financial systems. While volatile, crypto assets also provide opportunities for staking, passive income, and portfolio diversification uncorrelated with traditional finance. As blockchain adoption grows, institutional interest in crypto is only increasing.
Diversification: More Than a Buzzword
Diversifying a portfolio with alternatives isn’t just a trendy strategy—it’s a smart risk management technique.
The traditional 60/40 portfolio (60% equities, 40% bonds) struggles in today’s volatile environment. Alternatives help fill the gap by offering uncorrelated returns, income resilience, and capital preservation.
When you incorporate the “3 Ds” into your diversification approach, your portfolio becomes far more durable:
- Diversity: Blend uncorrelated asset classes that move independently of each other.
- Durability: Focus on assets that offer long-term income and growth potential.
- Defensiveness: Reduce drawdowns and protect against market shocks.
Even illiquidity, once seen as a drawback, is being addressed. Liquid alternatives—such as market-neutral funds or managed futures—are now offering flexibility without sacrificing performance.
The Future Is Alternative
Technology, inflation, and global market shifts are rewriting the investment rulebook. The future belongs to those who adapt—who move beyond public market constraints and tap into private capital, blockchain assets, and new economic models.
More investors today are choosing customized, actively managed alternative strategies that combine growth with stability. They want access to real assets, scalable innovation, and fund managers who understand the nuances of performance, valuation, and compliance.
If you’re not already diversifying with alternatives, now’s the time to start.
Let Us Help You Build a Smarter Portfolio
At Formidium, we combine advanced fund administration technology with deep expertise across private markets and alternative assets. Whether you’re an investor, manager, or institutional allocator, we can help you design, manage, and scale your alternative investment strategy.
Reach out today to learn how we can streamline your operations and unlock new opportunities in this fast-evolving space.