Alternative assets as an investment opportunity: how important are they?

Alternative assets have achieved unprecedented prominence in institutional investment strategies over the past decade, fundamentally reshaping portfolio construction and capital allocation decisions. According to Natixis Investment Managers, private and alternative investments now account for 83% of all alternative allocations within institutional portfolios globally. This concentration reflects a strategic shift toward non-traditional asset classes that offer structural advantages unavailable in conventional equity and fixed-income markets. The composition of these allocations reveals clear investor preferences: private equity dominates at 29% of alternative allocations, followed by real estate at 23%, private credit at 17%, and infrastructure at 14%.

The investment case for alternatives rests on fundamental portfolio theory principles: low correlation with traditional markets enables effective diversification while potentially generating higher yields than bonds or dividend-paying equities. However, this return potential comes with trade-offs. Certain alternative products exhibit high volatility, and illiquidity remains a structural feature of private markets. Alternative asset classes encompass a broad spectrum of instruments including real estate, private equity, hedge funds, commodities, infrastructure, cryptocurrencies, and tangible assets such as art and wines, offering investors multiple entry points and risk-return profiles.

Despite favorable macroeconomic conditions supporting alternative asset growth, institutional investors face a critical constraint: sourcing bottleneck. Dave Goodsell, CEO of Natixis, highlighted that 59% of institutional investors report difficulty identifying new opportunities as private equity's popularity intensifies. This supply-demand imbalance underscores the competitive nature of private markets and has implications for deal valuations and manager selection criteria. Concurrently, environmental, social, and governance (ESG) considerations have become integral to alternative asset allocation decisions, with 41% of private equity allocations and 39% of infrastructure allocations incorporating ESG criteria, contrasting with lower adoption rates in real estate and private credit strategies.

Mark Hempstead, Head of Alternative Investments for EMEA at J.P. Morgan, noted that the alternative investment universe has expanded considerably, offering investors substantial breadth in asset styles, investment frameworks, and vehicle structures. Latin America emerges as a region with significant economic potential and investment diversity, positioning it as a meaningful opportunity set for institutional capital seeking geographical diversification beyond developed markets. The convergence of these trends—institutional demand for alternatives, supply constraints in private equity, ESG integration, and emerging market potential—underscores why alternative assets have become central to institutional investment strategy in 2024.