In the very near future, alternative assets could become more accessible than ever before. But experts advise caution.
“The proliferation of alts to the masses will certainly democratize access, but I'm very doubtful it will democratize attractive returns,” said Brian Glenn, chief investment officer at Premier Path Wealth Partners in Madison, N.J.
Returns on alts can take time, if they come at all, he said, and few investors have the patience or deep enough pockets for that. Alt investments are also inherently illiquid and can tie up your money for longer than you may expect, he added. “Investors think they can own private assets and remain illiquid—and for the first year or two they’re fine,” he said. “But by year three, if they haven't begun to see meaningful cash flows through distributions, they become quite worried and frustrated.”
Broadly speaking, the category includes private equity, private debt, venture capital, hedge funds, managed futures, commodities, derivatives, real estate, crypto currencies and tangible assets such as precious metals, antiques and art.
By definition, alts are not publicly traded the way stocks, bonds and commodities are, which is part of their appeal and part of the problem. Because they aren’t correlated to traditional markets, they can provide an unparalleled degree of diversity to a portfolio. But that non-correlation also makes them difficult or impossible to sell. When you can’t sell, you can’t easily correct course, Glenn said.
That’s why, in the past, alt assets were only available to institutional investors and accredited individuals—i.e., people classified by the SEC as qualified to invest in complex or sophisticated securities because their wealth shields them from the need for regulatory protections. Specifically, they had to have at least $1 million in net assets (not counting their home) or $200,000 in annual income ($300,000 for couples).
This exclusivity has started to change.
ETFs
One of the easiest ways for Main Street investors to own alts is through a mutual fund or exchange-traded fund (ETF). They trade daily, which solves the liquidity problem, but experts say that they often have higher fees than other ETFs—some have expense ratios 10% or higher.
Alts may soon become even easier to buy.
There is a bill before Congress, introduced last fall by Sen. Tim Scott of South Carolina, that would make alternative assets available to anyone who passes a test, regardless of financial means. A similar proposal was included in Project 2025, the conservative legislative blueprint that President-elect Trump partially disavowed.
“I like the idea of alternative investments becoming more accessible to more people,” said Jonathan Farr, private markets director at Homrich Berg in Atlanta. “However, my concern is that we may find ourselves with investors who sign up for an investment vehicle and not fully understand the risks.”
The idea of passing an exam might help, he added, but it would have to “cover a lot of ground.” Multiple choice or true/false questions “would not be sufficient,” he said.
Meanwhile, the number and variety of alt ETFs keeps expanding. In December, the $2 trillion world of private credit opened up to ETF investors for the first time through new offerings from BondBloxx and Virtus Investment Partners. According to their websites, these ETFs hold private credit in the form of collateralized loan obligations, which are essentially pools of corporate bonds that typically have low credit ratings. BondBloxx’s ETF, which has fees of 0.68%, invests in double-B-rated debt. Virtus’s ETF, however, holds only triple-A bonds and charges just 0.29%.
The latter may sound relatively safe and inexpensive. Not all advisors are on board, though.
For instance, Dan Rasmussen of Verdad Advisers in Boston and author of "The Humble Investor" dismissed much of the information advisors receive from alt purveyors as “industry propaganda.” The reality, he said, is that private equity is “leveraged micro-caps with lockups and high fees” and private credit is “high-interest-rate loans that banks wouldn’t touch.” He warns advisors not to let the “smoothed returns and laundered volatility trick you into thinking these aren't high-risk, high-fee assets with a lot of blow-up potential.”
Bitcoin And Other Alt Options
If you’re undeterred, other options for ordinary investors to participate in alt assets include interval funds, which are closed-end funds with a fixed number of shares and a high minimum investment (usually $10,000 on up) and high expense ratio. Though shares can be bought daily, they typically can only be redeemed quarterly, advisors say.
There are also feeder funds that channel money to alt investments, usually with high minimum investments, and technology platforms that pool capital from different investors, which enables them to accept lower minimum investments.
Perhaps the most popular alternative asset for ordinary investors is crypto currency. Last year, the value of bitcoin more than doubled, and some analysts expect a similar performance in 2025. “We appear to be entering a more crypto-friendly era,” said Pat Nerney, head of investment solutions for Dynasty Financial Partners in St. Petersburg, Fla.
Crypto has become a “legitimate asset,” he said, adding that his firm is still debating “how best to approach crypto from an allocation perspective.”
Other advisors question the value of buying crypto now, when it’s already trading so high. “The new administration’s crypto-friendly views and greater acceptance by the investing community have been priced-in already,” said Jeffery Nauta of Henrickson Nauta Wealth Advisors in Belmont, Mich. “For now, there are better alternatives.”
Part of the problem is that there is no valuation model to help calculate whether bitcoin and its ilk are over- or under-valued, advisors say. Like gold, its worth is determined solely by supply and demand. “This is a purely speculative asset, if we must call it an asset,” said Jonathan Treussard of Treussard Capital Management in Newport Beach, Calif.
The Need For Education
Despite such doubts, advisors are eager to use alternative investments for their clients. In a recent survey of 500 financial advisors by private-asset specialist CAIS and the consulting firm Mercer, 92% of those surveyed said they currently incorporate alts in client portfolios and 91% said they plan to increase their clients’ alt allocations within the next two years. One clear reason is client demand. Some 86% of respondents reported that using alts helps “differentiate their practice,” with 63% saying it helps them win new clients.
Yet when were asked about their top challenges related to alts, 36% of respondents cited lack of liquidity, 26% singled out the high fees and expenses, and just 4% said alts are “too risky.”
“Many participants are entering a space with limited knowledge and experience,” said Rob Kane, director of alternative investments at Commonwealth Financial Network in Waltham Mass. They may not, for instance, fully understand the need to hold alt assets for the long term before they can deliver the desired results, he said, which could lead to “premature exits [and] liquidity challenges” that might force managers to “sell assets at discounted prices.”
Advisors and clients alike should educate themselves before embarking on alt investments, said Steve Brennan, head of private wealth solutions at Hamilton Lane in Conshohocken, Pa. “As the private markets continue to open up to a greater number of investors, access to credible resources on the asset class will remain critical,” he said.