Alternative Investments

Published On: July 8, 2025

Written by: Ben Atwater and Matt Malick

Perhaps it is a fear of missing the next big AI advancement or cryptocurrency, or maybe it is just a general feeling that Wall Street is failing the average investor? But young investors are showing a preference for alternative assets. According to a recent Bloomberg article on the subject, young investors are “skeptical that traditional markets can deliver wealth over the long haul.”

 

 

Nobody is happier about this development than those in the financial services industry who package alternative investments and charge the significantly higher fees that alternatives normally command. A 2024 study by Preqin, a division of BlackRock that provides alternative asset financial data, estimates that industry assets were sitting at about $17 trillion at the end of 2023 and will grow to a whopping $29 trillion by 2029.

In a study by Richard Ennis, a retired institutional investment consultant and alternative industry skeptic, he found that big endowment funds that invest in alternatives consistently underperform traditional stock-bond portfolios while also paying much higher fees.

“The margin of underperformance,” he states, “is suspiciously similar to the amount of alts’ expenses.”

 

Institutional investors have already embraced alternative investment vehicles, so financial institutions are increasingly packaging them for retail consumers. A survey by CAIS, an alternative investment platform, shows 80% of alternative managers plan to launch retail-friendly products and structures, nearly double that of three years ago.

The surprising thing about young investors’ gravitation toward alternatives is that traditional investment portfolios have had a good run, despite some bumps along the road. Over the last 15 years, an 80/20 portfolio of global stocks and US bonds, rebalanced annually, earned 8.86% per year.

 

 

Alternative investments are certainly not all bad. They can reduce overall portfolio volatility, which can be as important as long-term return depending on the goals of the portfolio. But they require an extra level of due diligence, especially as it relates to fees and risk management. And we do not think they should replace core exposure to traditional stocks and bonds, with a focus on free cash flow at a modest valuation on the equity side, and safety of principal with stable income on the fixed income side.