Alternative Investments and Private Market Expansion

Anyone who’s even remotely attuned to the market can tell you it’s unstable. To shield themselves from volatility and hedge against inflation, many people turn to traditional safe-haven assets like gold. Others have moved to a more radical approach: alternative investments.

Alternative investments generally involve private markets, and investors turn to these markets in search of greater portfolio stability and diversification. As a financial advisor, you might wonder: Should you start offering these alternative investments to clients?

The truth is that public markets represent a shrinking share of economic activity, so in many cases, alternative investments are worth offering. However, you should only go this route if you’re ready to do your due diligence.

Why Are Private Markets Growing?

Private markets have been growing for a few different reasons. One is the fact that capital is staying private longer. To avoid the volatility of the current market, more companies are waiting to go public. Instead of making an IPO, these companies turn to private investors instead.

Investors have also realized that in many cases, private equity, private credit, real estate, and other non-public asset classes tend to yield higher returns.

Private markets are not new. However, because volatility and inflation have begun to seriously compromise returns on public markets, many investors are putting more of their money in private markets instead.

What “Alternative Investments” Really Mean

The term “alternative investments” refers to assets outside of traditional investment categories like stocks or bonds. Common examples include:

• Real estate
• Gold, oil, and other commodities futures
• Private credit (making loans directly to businesses)
• Collectibles (including art, sports memorabilia, and wine)
• Digital assets like cryptocurrency
• Private equity or venture capital (investing in private companies)

Returns on alternative investments usually aren’t correlated with the public market, so for many clients, they’re a reliable way to diversify a portfolio.

How to Integrate Alternatives (Without Adding Complexity)

If you’re hoping to add alternative investments to your business, the importance of due diligence can’t be overstated. However, if you’re already running a busy practice, it can seem nearly impossible to research, identify, and thoroughly vet multiple potential investments. 

We’ve found that third-party asset managed (TPAM) models allow many of our clients to integrate a range of alternative investments without further complicating their workflow. TPAM models let you instantly access diversified, professionally constructed portfolios. These portfolios include a mixture of asset classes.

Crucially, TPAM platforms automatically rebalance based on changes in the market. You can also set personalized reallocation thresholds to keep the portfolio’s performance in line with a client’s specific goals.

For many clients, the TPAM itself can help assuage worries about market risk. We generally suggest that advisors emphasize the fact that they aren’t chasing trends; instead, they’re sticking to a disciplined approach that can likely result in considerable returns. 

We also suggest being transparent. When you explain how TPAM models work in simple terms, your clients understand that you haven’t just picked an easy strategy. You’ve selected a customizable, professionally built portfolio and adjusted it to suit their needs.

Need Help Adding Alternative Investments to Your Practice?

The shift toward alternative investments appears to be more than just a trend; it’s a fundamental structural shift in how clients can diversify their portfolios. Adding the right alternative investments to your practice can help you meet clients’ needs, but adding the wrong ones can be disastrous.

We invite you to join our community and receive our insights. Connect with us via email at connect@equitypartners.com or use this link to sign up.

Frequently Asked Questions

Why are advisors adding alternative investments to client portfolios?

Many advisors are exploring alternative investments (assets outside traditional stocks and bonds, such as private equity, private credit, real estate, commodities, and certain digital assets) because they often behave differently from public markets, which can help diversify portfolios, reduce volatility, and provide exposure to areas of the economy that no longer exist in public markets.

What risks should financial advisors consider before offering alternative investments?

While alternative investments can offer diversification benefits, they also come with added complexity. Liquidity constraints, valuation challenges, regulatory considerations, and due diligence requirements are all important factors. Advisors need to confirm these investments align with a client’s goals, risk tolerance, and time horizon rather than being added simply because they’re popular.

How can Equity Partners help advisors integrate alternative investments responsibly?

Equity Partners works with independent financial advisors to evaluate whether alternative investments make sense for their practice and clients. We help advisors think through due diligence, portfolio construction, and scalable implementation options (such as professionally managed third-party models) so alternatives can be incorporated thoughtfully without overwhelming operations or increasing unnecessary risk.