Investors have poured trillions into alternative investments in recent years, including cryptocurrencies. And alternative asset classes of all kinds look poised to become an even bigger part of investment portfolios globally in the coming years.
As higher interest rates and market volatility have driven investors to alternative assets, Propel(x) compiled critical statistics on the growth of alternative investments from financial, expert and news sources.
Alternative investing involves buying assets that are not considered part of the typical asset classes: stocks, or stocks, bonds, stocks, and cash. Some financial advisors also consider investing directly in real estate rather than real estate investment trusts and direct oil and gas participation programs as alternative asset classes. Measured overall, it’s a market poised to see 11.7% annual growth in total assets from 2021 to 2026, according to leading investment research from Prequin.
Including alternative assets like real estate and hedge fund investments is a common way to reduce risk in a portfolio. Private purchases of art, investments in spirits and exotic wines, as well as tangible collectibles are also part of the alternative investments today.
Including alternative investments as part of a diverse asset mix in a portfolio can provide a buffer against steep losses in any category, as individual asset classes, such as bonds, tend to behave similarly.
The appetite for alternative assets is often driven by the desire to avoid the downside risks of volatile markets. US and UK stock markets, for example, are more likely to swing one way or the other in response to Federal Reserve rate hikes and global conflicts.
Private markets saw an influx of investors looking to diversify into alternative assets when public equity markets began to plummet in early 2020, at the onset of the COVID-19 pandemic. Those data are from the CAIA Association, which publishes the Journal of Alternative Investments. The Fed later raised interest rates to cool post-pandemic inflation, resulting in a sharp correction in cryptocurrencies.
In 2022, the most common way for investors to access alternative investments is through the purchase of liquid alternative mutual funds, unlisted REITs and liquid ETFs, according to a recent report from market research firm Cerulli Associates.