For most of the 20th century, a portfolio built on stocks, bonds, and cash was considered complete. The logic was simple: stocks for growth, bonds for stability, cash for liquidity. For many investors, that framework still works reasonably well.
But among high-net-worth individuals, that framework has been quietly evolving. Capgemini’s 2025 World Wealth Report found that HNWI allocations to alternative investments rose to 15% in 2024, up from 13% the prior year, with wealth managers increasingly recommending allocations of 20% or more. Family offices, the investment vehicles of the ultra-wealthy, have long maintained allocations closer to 30 to 50%.
The shift is purposeful. Here’s what alternative investments are, why they’ve gained traction among sophisticated investors, and what they bring to a portfolio.
What Are Alternative Investments?
Alternative investments are asset classes that fall outside the traditional categories of publicly traded stocks, bonds, and cash. The category is broad and includes:
Private equity: Ownership stakes in privately held companies, either through direct investment or via private equity funds. Returns are generated through business growth, operational improvement, and eventual sale or IPO.
Private credit: Loans made to businesses outside of traditional bank lending or public bond markets. Private credit typically offers higher yields in exchange for reduced liquidity.
Hedge funds: Pooled investment vehicles that employ a wide range of strategies (long/short equity, global macro, arbitrage, and others) with the goal of generating returns that are less correlated to traditional markets.
Real assets: Physical or tangible investments including real estate, infrastructure, commodities, and natural resources. These often provide inflation protection and income.
Collectibles and other hard assets: Art, wine, precious metals, and similar assets that can serve as stores of value and portfolio diversifiers, though with illiquidity and valuation complexity.
Why HNWIs Use Them
Three objectives drive most HNWI allocations to alternatives: diversification, return potential, and low correlation to public markets.
Diversification and lower correlation. Public stock and bond markets often move together during periods of stress, when diversification matters most. Many alternative assets, particularly private credit, infrastructure, and certain hedge fund strategies, are designed to behave differently from public markets, providing a degree of stability when traditional portfolios are under pressure.
Return potential. Private equity and private credit in particular have historically offered return premiums over their public market equivalents, in part because investors accept illiquidity in exchange for higher expected returns. The 2026 Long Angle High-Net-Worth Asset Allocation Report, which surveyed 233 investors with an average net worth of $17 million, found that real estate, private credit, and private company equity are among the most common alternative allocations among sophisticated HNWI investors.
Access to private markets. A growing share of economic value creation is happening in private companies that never reach public markets, or that stay private much longer than previous generations did. Institutional investors have long had access to these opportunities. High-net-worth individuals are increasingly gaining access as well, through private funds, feeder vehicles, and direct co-investment structures.
What to Understand Before You Invest
Alternative investments come with characteristics that require careful consideration. Liquidity is typically limited. Capital committed to private equity or real assets may be locked up for five to ten years or more. Minimum investment thresholds can be substantial. Fees tend to be higher than traditional funds. And the range of outcomes within any alternative category is wide. Manager selection matters considerably more than it does in a passive public market strategy.
These characteristics don’t disqualify alternatives from a well-constructed portfolio. They simply mean that alternative allocations require thoughtful sizing, careful selection, and a clear understanding of how each investment fits within the context of the broader financial plan.
Starting the Conversation
Whether you’re exploring alternatives for the first time or looking to expand an existing allocation, the starting point is always the same: a clear picture of your liquidity needs, time horizon, risk tolerance, and overall portfolio objectives.
A qualified financial professional at Barnum Financial Group can help you evaluate which alternative strategies, if any, are appropriate for your situation, and how to integrate them in a way that serves your long-term goals.
