In the world of investing, diversification isn’t just a strategy—it’s a lifeline. While traditional investments like stocks and bonds have long been the cornerstone of portfolios, alternative investments have emerged as a powerful tool for sophisticated investors seeking to manage risk and unlock new opportunities.
What Are Alternative Investments?
Alternative investments go beyond conventional asset classes.
These typically include:
- Commercial Real Estate
- Infrastructure
- Private Equity
- Private Credit
- Farmland
- Hedge Funds
Why Alternatives Matter
According to insights from the Lawson Foundation’s investment experts, alternative investments offer unique advantages:
- Lower Correlation
Unlike traditional assets that often move together, alternative investments can provide returns that are less tied to standard market movements. This means when stocks and bonds struggle, alternatives might still perform.
- Potential for Higher Returns
Alternative investments often access markets and opportunities unavailable in public markets, potentially generating superior returns.
- Enhanced Portfolio Diversification
By adding assets with different risk-return profiles, investors can create more resilient portfolios. Key Considerations Not all alternative investments are created equal.
Investors should carefully evaluate:
- Liquidity constraints
- Valuation challenges
- Higher due diligence requirements
- Potential higher fees
Practical Insights from Experts
Anish Chopra from the Lawson Foundation shared critical advice:
- Start small
- Understand the specific strategy
- Align alternatives with your investment mission
- Consider fund-based approaches for easier diversification
Emerging Trends
PwC projects alternative investments will comprise nearly 15% of total global assets under management by 2025—a significant growth trajectory.
Who Should Consider Alternatives?
- Institutional investors
- High-net-worth individuals
- Foundations and endowments
- Investors seeking portfolio complexity
Caution: Alternatives aren’t for everyone.
They typically require:
- Higher minimum investments
- Longer investment horizons
- Greater risk tolerance
Pro Tips for Getting Started:
- Consult financial professionals
- Start with a small allocation
- Understand your risk profile
- Continuously educate yourself
The Bottom Line
Alternative investments represent a sophisticated approach to portfolio management. They’re not about replacing traditional investments but complementing them to create a more robust, resilient investment strategy.
Remember Harry Markowitz’s wisdom: Diversification is the “only free lunch in investing.” Alternative investments are your opportunity to expand that lunch menu.
This blog is based on the 2025 FENI Summit session featuring Peter Muldowney of CC& L Financial Group and Anish Chopra of Lawson Foundation
