Investors are increasingly turning to alternatives to diversify and secure their portfolios. Over two-thirds of advisors polled at Cerulli cited reducing exposure to public markets and focusing on alternative assets. Following this line, an alternative investment report could help you clarify your financial path.
Alternative investments such as private equity, private credit, or commodities represent assets not correlated with the traditional public markets, taking investments further than stocks, bonds, or cash.
With some ups and downs, alternative assets today are larger than ever. $22 trillion in assets under management—that’s 15% of global assets under management—with private equity leading the list at $9.2 trillion.
This report analyzes those ups and downs, along with the latest forecasts and opportunities in the alternative investment scene, providing the insights you need to make smart choices.
Whether you’re a seasoned investor looking to invest in a particular type of alternative asset or searching for passive income with solid returns, this report will help you navigate the alternative investment world in 2024 and beyond.
What You Need To Know About Alternative Investments in 2024
Alternative investments cover many asset classes beyond the usual stocks, bonds, and cash. These alternatives—including private equity, private credit, real estate, and other assets—now average more than 25% of total institutional portfolio allocations.
With the potential for greater risk-adjusted returns and reduced correlation to traditional asset classes, alternative investments have become an attractive option for enhancing portfolio performance.
As things stand, alternative investments have achieved a 9% annual return over the last decade, positioning it as a steady income stream and value proposition for investors. In comparison, the S&P 500 had higher returns of about 12% per year but came with more risk and ups and downs.
Some of the main reasons why investors choose alternative investments over S&P investments and other traditional assets are:
- Diversification: Alternative investments include a variety of assets like real estate, private equity, or commodities. They provide diversification beyond traditional stocks and bonds, which can reduce overall portfolio risk. The S&P 500, on the other side, comprises US stocks that provide high exposure to the US equity market.
- Lower correlation with the stock market: Alternative investments have a lower correlation with the stock market, meaning they can perform differently and independently. This is highly valuable during market downturns. It helps stabilize your portfolio during periods of high volatility in more traditional markets. On the contrary, the S&P 500 performs highly correlated with the overall stock market and is more susceptible to market fluctuations.
- Potential for higher returns in niche markets: Some alternative investments, like private equity, can offer higher returns by investing in early-stage companies or niche markets inaccessible through the public stock market. Although the S&P 500 can offer steady growth for providing exposure to established, large companies, it can offer lower returns compared to alternative investments.
- Access to exclusive opportunities: Aligned to the point above, alternative investments offer exclusive opportunities not available in public markets, such as SaaS companies or Amazon FBA businesses. You can invest in unique projects, start-ups and private companies with great potential for significant growth.
Over the past decade, seasoned investors have chosen alternative investments to allocate their money to less correlated assets, pursuing portfolio diversification for better returns and lower risks. According to a survey, individuals with more than $1 billion in assets keep over half of their investable wealth in alternative investments.
To better understand alternative investments’ current and future performance, we should start with 2021. A growing trend of businesses operating privately—and not listed in US public stocks—led the private market to grow fast. Alternative investments in these private entities totaled $13 trillion in assets at the end of 2021, as reported by Preqin.
It was a year with high economic volatility, inflation at levels unseen since 2014, and a pandemic. Despite this, alternative assets demonstrated a strong performance—the total dollar value in these asset classes more than doubled between 2015 and 2021. This was a record year for them, especially for private equity, with multiple buyouts and exits.
Later, in 2022, alternative investments’ popularity and confidence increased along with their growth numbers. Nearly 5% more money was invested in alternative investments compared to 2021. Additionally, asset managers held around 15% of their investments in alternatives in the first half of 2022, a 10% year-over-year increase. The share of alternatives in the total asset universe was at 15.5%—its highest ever.
However, in 2023, alternative investments suffered a downfall. Several factors led to this, but the main ones were increasing interest rates, uncertain future rate decisions, higher debt servicing costs with reduced debt availability, and a significant decline in exit and buyout deal value.
Alternatives underperformed in 2023 compared to public markets, reversing the trend from 2022. The share of alternatives in the total asset universe fell to 14.9% in 2023 from a record high of 15.5% in 2022.
Despite the challenges, there is renewed optimism among those seeking to diversify their portfolios this year. According to Nikolaos Panigirtzoglou, Global Markets Strategist at J.P. Morgan, fundraising for alternative investments has demonstrated resilience and is anticipated to remain robust in 2024.
Below are some key takeaways from different alternative investments’ performances for 2024 that will help map out the year:
- Private Equity: The private equity market is currently challenging, but some difficulties might ease this year. New funds are competing with older ones and looking for better positions to grow even in a high-interest environment. Some sectors, such as B2B manufacturing, materials, and energy, are expected to perform well.
- Private Credit: Due to increased competition, private credit spreads, the difference between the yield of private credit and risk-free assets, are expected to narrow in 2024. Additionally, the number of deals increasingly grew in 2023’s Q4.
- Hedge Funds: These funds are expected to continue doing well in 2024, with a high performance in 2023—8% total return and AUM exceeding $4 trillion. However, macro hedge funds and quantitative hedge funds did not perform well.
- Commodities: According to J.P. Morgan, it’s expected to reach $2,300/oz by 2025. Gold prices have recently increased due to its appeal as a safe-haven asset in economic and geopolitical uncertainty.
As long as geopolitical and economic conditions remain volatile and affect investors’ finances, they will continue looking for alternative investments to diversify their portfolios and mitigate risks. So, what can we expect for the rest of 2024 and the next years?
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The General Alternative Investment Outlook for the Next Decade
Looking ahead to the next decade, alternative assets show great potential to continue leading financial strategies for risk mitigation and portfolio diversification, with an increasingly promising future. To better project and understand this potential, an alternative investment outlook can help you anticipate market trends, assess economic conditions, and evaluate sector-specific opportunities and risks.
Through this alternative investment report, we’ve seen that 2022 outperformed 2021, that 2023 suffered some downfalls and that 2024 is expected to remain robust. The alternative asset market is expected to reach $23.21 trillion by 2026, with private equity and venture capital as the largest asset classes with AUM expected to exceed $11 trillion.
There have been clear impacts on alternative investments, such as higher interest rates. These have mixed effects since they can be favorable for private credit due to floating-rate debt, negative for commercial real estate due to tighter credit conditions, and negative for private equity due to increased financing costs.
The economy is expected to slow down in 2024 but is not anticipated to experience a severe recession. Inflation is expected to decrease, but it is not likely to reach the Federal Reserve’s target of 2%. As a result, the Fed and other central banks will probably reduce interest rates over the coming year.
The economic market is also affected by geopolitical events and crises such as the Gaza and Ukraine conflicts combined with an election year in the US and other political challenges, including potential government shutdowns, gridlock, increasing debt, and social unrest— increasing risks.
Despite these challenges, CAIA projects a growing demand for alternative investments this year as investors seek innovative solutions to overcome economic uncertainties and achieve long-term financial goals. After all, record lows in global interest rates have driven pensions toward alternative investments.
Also, we will be seeing a transition from rising inflation to weakening growth and falling inflation. Historically, this has benefited value stocks, private equity, infrastructure, and relative value investments.
Despite continuing uncertainty and market volatility, private markets are uniquely positioned to benefit from structural changes such as digital disruption, low-carbon transition, and geopolitical fragmentation. This highlights the growing interest in private equity and debt as essential to diversified investment portfolios.
2024 Alternative Investment Report: Conclusion
Finishing with this 2024 alternative investment report, we can say that, while the economic outlook for this year presents some uncertainties, the long-term potential of private assets—especially private equity—remains strong.
Investing in private equity can benefit from high returns, exclusive opportunities, a long-term perspective, portfolio diversification, and resilience during economic downturns.
As the alternative asset market grows, private equity stands out as a compelling option for accredited investors looking to capitalize on new opportunities over the next decade. It is expected to adapt to the new normal of high interest rates and elevated capital costs, understanding the critical need for value creation in such economic uncertainties.
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This shift is because people are starting to see online businesses as profitable, scalable, and relatively low-risk compared to other alternative assets. The eCommerce market, for example, is projected to grow by 9.49% worldwide (2024-2029), resulting in a market volume of US$6478.00bn in 2029.
Investing in alternative assets has the potential to reduce portfolio volatility and capture higher returns due to illiquidity premiums. Moreover, tapping into online businesses can also promise profitability and scalability.
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