According to a recent report from Preqin, in the past most alternative investment assets (said to now total $6 trillion) have been held by institutional investors or by accredited, high-net-worth individuals. But, with that being said, things are beginning to change.
According to Morningstar alternatives’ investment analysts, private investment into alternative investment offerings increased 36 percent in 2013 (over 2012 figures) and rose more than a 100 percent, over the past two years. Albeit alternative fund assets now comprise nearly $150 billion, this figure is still regarded as “just a drop in the bucket” when compared to the total of all long-term funds, which are valued at $11.3 trillion.
Supporters of this new investing strategy believe the introduction of of alternative investments in the mainstream market, is a financial innovation that is here to stay. When applied correctly, experts believe that alternatives provide individual investors with some of the same low-risk/high-yield benefits that have made them attractive to institutions, and kept them a carefully guarded investment secret for years.
Analysts attribute the rapid increase in interest in alternative investment, to investors looking for more diversification and for lower volatility, particularly when compared to traditional holdings like stocks or bonds. More specifically, investors find that the wider set of investment opportunities and access to leverage, are much more appealing than the poorly performing stock and bond markets.
Although many experts/analysts say that alternatives are here to stay, predominately because they can address fundamental economic shortcomings associated with other types of investments, that does not mean that all opportunities are golden. According to Morningstar, to be considered a good alternative investment an offering should consistently produce positive, risk-adjusted returns over a reasonable time frame, and exhibit low correlations to traditional investments.