Assets and interest in alternative investments, which includes non-traditional bonds, hedge funds and commodities funds, are booming. That’s because more advisors are inquiring about them and see them as a diversification tool.

Such were the claims of Fidelity Investments institutional officials about this non-traditional asset class.

“We hear every day that advisors are interested in alternative investments,” says Gary Gallagher, senior vice president, investment products, Fidelity Institutional. “And last year they were one in every four dollars going into an alternative strategy, which is pretty significant.”

The mutual fund giant, in trying to sell more of these investments, has a strategic alliance with Goldman Sachs, Morningstar and CAIS. The latter is a financial technology company offering a platform that has an expanding line of alternative products. Its goal is to make alternative investments more accessible, with clearer reporting data.

Alternative investment products are “clearly growing,” said Josh Charlson, director of alternative investment products for Morningstar. He said the “organic growth” of these products is running at about 20 percent a year. “That’s pretty impressive and far better than any other asset class.”

Last year, 22 percent of net mutual fund flows into Fidelity Institutional went into alternative investment mutual funds, according to Morningstar. Liquid alternative product is growing faster than the illiquid group.

At a news conference on Thursday, Fidelity officials predicted that alternative investments will be going “mainstream” over the next few years. Fidelity’s goal is to “bring single manager hedge fund solutions to the wealth management space,” says Michael Diamond, vice president, product management, Fidelity Institutional Product group.

How will advisors and their clients be persuaded to add another asset class to client portfolios?

“The way we think about alternatives is you have your stocks and your bonds. Now you will be able to add something else that can help drive returns, irrespective of what is going on in the broader market,” according to Larry Restieri, head of product sales for Global Third Party Distribution within Goldman Sachs Asset Management. He claimed that the proper use of alternative investments can “dampen volatility” in down markets.

Still, Gallagher and his strategic partners conceded that these sometimes exotic products offer “a challenge.” The biggest challenge may be the nature of the typical alternative investment, which is anything but a typical financial product. It can run the gambit from event-driven, merger arbitrage and credit distressed products to various global macro investment strategies, among others.

Goldman Sachs’ Restieri noted that “in the retail space, not only are these new products for investors, they are also new products for advisors.” Still, he emphasized that his firm is working with Fidelity to educate advisors. They also emphasized that, with more alternative investments coming to market, fees are declining.

And the potential of these products, Restieri added, is achieving investment goals while reducing risk. “You can use them to get to your return objectives in a less volatile way.”

Any of these can be difficult for both advisors and their clients to understand. So Gallagher said that Fidelity has been running seminars to educate advisors about their alternative products and how they should be used.

Asked by Financial Advisor if there was a possibility of a repeat of the limited partnership disasters of the 1980s, when thousands of investors lost lots of money in illiquid, high-commission products that were often misunderstood, Fidelity’s Diamond said the company and its partners would employ “all the due diligence” needed to ensure these products were right for the investor.

Other challenges for alternative investments, Fidelity officials said, include keeping up with fiduciary rules, access, reporting and building scale in both liquid and illiquid alternative products. Another challenge for alternative products is the lack of “transparency and standardization,” said a technologist trying to take the product into the mainstream.

Matthew Brown, CEO and founder of CAIS, said advisors interested in using the asset class for the first time will need “accessibility and support” to incorporate it as part of their portfolios. Brown noted that many smaller advisors interested in alternatives lack the resources to oversee these products, many of which are relatively new.

He said the CAIS platform will provide all the operational and investing due diligence. “This isn’t really about replacing the advisor on due diligence. This is more about helping them narrow that manager universe and provide them the resources, and [it] will only help them.”

However, another product challenge, conceded Morningstar’s Charlson, is that many of these alternative investments are terra incognita. Often they have little or nothing in the way of track records. “Generally,” he added, “we like to see a fund with a three-year track record.”

Nevertheless, despite the hurdles to getting investors and their advisors out of the mind set of stocks and bonds and little else, Restieri predicted that alternative investments will become the meat and potatoes of most investment portfolios.

“This is going to happen fast. And five years from now,” Restieri said, “we will not even be having this conversation because alternative investments will be a natural part of most peoples’ portfolios.”