[Nasdaq] Alts for All: The Growth of Alternative Investments, Explained

By Michael Wang, CEO and Founder of Prometheus Alternatives Investments

As the number of investors who realize that they will fall short of their long-term savings goals with a traditional 60/40 portfolio of stocks and bonds increases, so does their appetite for alternative investments. It's no coincidence. By 2025, total alternative investments under management are projected to reach $17.2 trillion—a four-fold increase since 2010. Almost all that money is from institutional investors and ultra-high-net-worth families. The latter group was reported as having 50% of their assets in alternatives in 2020. If we look at billionaires alone, the percentage of assets allocated to alternatives is even higher, at around 51-54%.

However, the projected total value of the alternative assets under management is just a tenth of the $170 trillion in assets collectively held by high-net-worth individuals globally. It's this capital that needs help to be deployed, unfettered by archaic regulation and other barriers to entry.

For the time being, "alternative investments" remains a term I have to explain pretty often in my interactions with people outside of the finance industry. Over the years, I've boiled that explanation down to simply this: stocks, bonds, and cash are traditional investments. Everything else can be put in a bucket labeled "alternative investments."

For good measure, I'll typically list hedge funds, crypto funds, venture capital, private equity, commodities, real estate, private debt, and art and collectibles as examples of alternative investments or “alts” for short. Sure, it's a pretty disparate list of products, but it's what they have in common that's fueling the appetite for alternatives.

An attribute all alts share is they are less correlated—in some cases completely uncorrelated—to the broader market. That's not something investors have had to be too cognizant of during the longest bull market in U.S. history, but given the significant macro headwinds we face, it's an incredibly important characteristic.

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