Alternative investment strategies are becoming more accessible to a broader range of investors, including those who previously did not meet the requirements for entry. These strategies, which have traditionally been available only to institutions and high-net-worth individuals, are now being offered through new vehicles with lower minimum investments and increased transparency.
Frank Famiglietti, Managing Director and Head of Intermediary Alternatives Distribution, stated: "Alternative investment strategies may potentially improve performance of and add diversification to 60/40 portfolios. These strategies are no longer the exclusive domain of institutions and wealthy individuals. With the introduction and evolution of client-friendly vehicles, many individual investors now have access to these strategies. Professional investors should know the value proposition of alternative investments in order understand how allocating to them may help strengthen client portfolios."
The category of alternative investments covers a wide range of approaches that fall outside traditional equity and fixed income products. This includes hedge funds, private credit, private equity, real estate, and infrastructure. Hedge funds use various methods such as Equity Hedge, Event Driven, Relative Value, Macro, and Multi-Strategy categories to manage risk or seek returns independent from standard markets.
Private credit has seen significant growth since the global financial crisis. According to Preqin data from October 2023 and Pitchbook forecasts from April 2025, assets under management in private credit rose from $262.2 billion globally in 2009 to $1.8 trillion in 2025. Private credit generally includes direct lending (primarily for middle-market companies), specialty lending (often backed by assets like real estate), and distressed lending (involving companies under financial stress).
Private equity focuses on different stages in a company's lifecycle—early-stage venture capital, growth capital for expanding firms, or buyouts where investors take controlling stakes in mature businesses.
Real assets include both real estate—categorized as Core, Core-Plus, Value Add or Opportunistic—and infrastructure projects ranging from toll roads to hospitals.
Recent market events have highlighted limitations in the traditional 60/40 portfolio model due to simultaneous declines in both stocks and bonds during periods like 2022 when higher interest rates affected both asset classes negatively. This has led advisors to consider alternatives as a way to enhance income potential and diversify portfolios beyond conventional means.
Studies cited by Morgan Stanley Investment Management indicate that allocations toward alternative investments can improve balanced portfolio outcomes over time. The Cerulli Report on U.S. Alternative Investments noted that advisor allocations are expected to increase from 2% reported in 2023 to an anticipated 3% by 2026.
The expansion of investor access is attributed mainly to two factors: changing market conditions requiring new tools for professional investors; and product innovation by asset managers who have introduced regulated fund vehicles such as SICAV Part IIs, ELTIFs and LTAFs designed for sophisticated individuals able to tolerate less liquidity than public markets typically offer.
These changes mean that both professional advisors and retail clients can consider alternatives that were once reserved for large institutional players or ultra-high net worth individuals.
Famiglietti concluded: "In conclusion, the broadening access to alternative investments marks a significant milestone in the industry. Access to previously exclusive asset classes allows for enhanced portfolio diversification and the potential for higher returns with reduced volatility. As we navigate an increasingly complex and often volatile investment landscape, alternative investment strategies may prove to be powerful tools for both advisors and clients provided that potential risks and benefits are fully understood."
Investors considering these options are advised by Morgan Stanley Investment Management that alternative investments carry substantial risks including illiquidity; they often lack secondary markets or regular pricing information; fees tend be higher; leverage is common; losses could be significant; suitability varies widely depending on individual circumstances; legal or tax advice should be sought before investing; past performance does not guarantee future results; diversification does not eliminate risk entirely.
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