Alternative Investments as a Strategic Tool for Portfolio Diversification

Since the turn of the century, the world has experienced two major recessions, driving investors to seek higher yields amid declining interest rates. The alternative investment market—including key sectors like natural resources, private equity, venture capital, and infrastructure—has become an increasingly attractive option due to its potential for substantial returns. Research by Preqin (2021) estimated that the alternative investment market held approximately USD 13 trillion in assets in 2021, doubling its dollar value since 2015. The CAIA Association (2022) forecasts that alternative investments could make up half of the global investment market’s projected USD 153 trillion revenue by the end of this decade. Meanwhile, JP Morgan’s Global Alternative Outlook (2022) recommends investors incorporate hybrid investment solutions by adding alternative investment classes to their portfolios. Notably, research by Pezier and White (2008) reveals that an optimal portfolio allocation includes exposure to hedge funds, commodities, and private equity to enhance overall performance.

Alternative investments offer substantial growth potential and high-yield opportunities for the future. But what makes an investment alternative, and should you consider adding these to your portfolio?

What Is an Alternative Investment?

Alternative investments are assets that do not fall into traditional categories like stocks, bonds, and cash. A well-known alternative investment class is real estate, which has gained traction since the Industrial Revolution. Another appealing category is private equity, which typically involves higher entry barriers and longer investment horizons but offers attractive potential returns. One lesser-known but compelling class is litigation funding, which finances lawsuits and provides returns uncorrelated with the general market. Beyond financial gain, litigation funding aligns with impact investing principles, as it often contributes to positive social outcomes. Other notable alternative asset classes include infrastructure, renewable energy, and natural resource investments in areas like forestry and agriculture.

Should You Consider Investing in Alternative Markets?

Incorporating alternative investments into a traditional portfolio of stocks, bonds, and cash can help investors mitigate risk and reduce dependency on the stock market. While these assets carry higher barriers to entry and may involve longer-term commitments, they can deliver unique diversification benefits and a more robust risk-return profile.

At Global Investment Opportunities, we help investors navigate these complexities, providing tailored solutions to match each client's unique objectives and financial needs. If you're interested in learning more about alternative investments and how they can diversify your portfolio, reach out to us for a consultation.

Disclaimer: This content is provided for informational purposes only and does not constitute financial advice. Investment in alternative assets involves risk, and past performance is not indicative of future results. Please consult a qualified financial advisor before making investment decisions based on this information.