Alternative Investments
Asset classes outside traditional stocks, bonds, and cash — including real estate, private equity, hedge funds, and commodities.
What is Alternative Investments?
Alternative investments are asset classes that fall outside the traditional categories of publicly traded stocks, bonds, and cash equivalents. They include: real assets (real estate, infrastructure, commodities, timberland), private markets (private equity, venture capital, private credit), hedge funds (using complex long/short or derivative strategies), and collectibles (art, wine, rare coins). Alternatives are often used by institutional investors and high-net-worth individuals to diversify portfolios, reduce correlation with public markets, and potentially enhance returns. They typically have lower liquidity, higher minimum investments, less transparency, and higher fees than traditional investments. Access for retail investors has improved through interval funds, REITs, BDCs, and alternative ETFs.
Example
Yale's endowment, managed by the Yale Investments Office, became famous for its 'Yale Model' pioneered by David Swensen: allocating roughly 70–80% of the endowment to alternative investments including private equity, venture capital, real assets, and hedge funds. Over 20 years ending 2023, Yale's endowment generated approximately 10.9% annually — significantly outperforming a traditional stock/bond portfolio.