Is now the right time to invest in alternatives?

In today’s evolving financial landscape, alternative investment management is gaining traction among high-net-worth individuals (HNWIs) seeking diversification and opportunities beyond traditional assets like stocks, bonds, and cash. Alternatives offer a unique combination of growth potential, risk mitigation, and portfolio diversification—but they also require careful planning and expertise. At Brown Shipley, we help our clients navigate this complex asset class to unlock its full potential while managing its inherent risks.

What are alternative investments?

Alternative investments refer to assets that fall outside traditional investment categories like equities, fixed income, and cash. Examples include:

• Private Equity: Private equity invests in private companies (not publicly traded or listed) in exchange for equity or ownership. Public companies can occasionally also be acquired and made private or de-listed.
• Hedge Funds: Hedge funds are investment funds that invest in traditional assets (equities, bonds, derivatives) and use complex trading, portfolio-construction and risk management techniques to improve performance - such as short selling, leverage, and derivatives
• Private Real Estate: Private real estate funds make direct investments into existing properties or property developments, covering all sectors and regions.
• Private Debt: Private debt – often also referred to as private credit – is usually unlisted, not publicly traded debt securities, with a fixed or floating coupon. It is basically a financing source for companies that comes from funds and other investors instead of banks.
• Private Infrastructure: Infrastructure investment is a broad name for investments (equity/debt, listed/unlisted) into real assets in sectors that provide the public with essential services. 

These investments typically offer exposure to sectors or strategies that are less affected by the movements of public markets, making them an attractive addition to a well-rounded portfolio.   

Benefits of alternative investment management

Alternative investments provide a range of benefits that can complement and enhance your broader financial strategy. Here are some of the key advantages:

Diversification

By introducing assets with low correlation to traditional markets, alternatives can help reduce overall portfolio volatility. For example, infrastructure or real estate may perform well during periods of inflation, offering a hedge against market downturns.

Potential for higher returns

Private equity, private debt, and  other alternative funds often aim for returns that exceed those of traditional investments. While these opportunities may carry higher risk, the potential upside can be significant, especially for investors with a longer time horizon.

Access to unique opportunities

Alternative investment management opens doors to sectors, markets, and strategies typically unavailable to retail investors. This exclusivity can lead to unique growth opportunities tailored to HNWIs.

Inflation protection

Tangible assets like real estate and commodities often retain or increase their value during inflationary periods, providing a buffer against eroding purchasing power.

Alignment with personal values

Certain alternative investments, such as sustainable infrastructure or impact-focused equity investments, allow you to align your portfolio with your ethical or environmental priorities.

Risks and challenges of alternative investments

While the benefits of alternative investments are compelling, they also come with challenges that require careful consideration:

Illiquidity

Many alternatives, such as private equity or real estate, typically involve longer lock-up periods, meaning you may not be able to access your capital quickly.

Complexity

Alternative investments often require advanced expertise and thorough due diligence to evaluate their potential risks and rewards.

Higher fees

Management fees for alternative funds can be significantly higher than those for traditional investments, impacting overall returns.  As a Brown Shipley client, you’ll find we provide transparent value for money. We offer a straightforward and competitive pricing and service structure, with no hidden fees.

Market risk

While alternatives may reduce correlation with public markets, they are not entirely immune to broader economic conditions, which can influence their performance.
At Brown Shipley, we guide you through these complexities with a focus on transparency, helping you weigh the benefits against the risks to make informed decisions.

Harvesting the illiquidity premium

By committing capital to longer-term investment strategies, investors can capture the illiquidity premium—a potential for enhanced returns in exchange for accepting reduced liquidity. This approach rewards patient investors who are willing to lock in their capital, offering the possibility of higher yields compared to more liquid, traditional assets.

Broader opportunity set

The universe of investment opportunities is expanding beyond public markets. Over the past two decades, the number of listed companies has declined by nearly 50%. In the US, 87% of companies with revenues exceeding $100 million remain privately held. As public equity opportunities become more limited, private markets are flourishing, providing access to a broader and more diverse array of investment opportunities. Engaging in alternative investments enables you to tap into this dynamic and growing segment, unlocking potential for growth that is often unavailable through traditional markets.

Why now might be the right time for alternatives

With market volatility and economic uncertainty dominating headlines, alternative investments offer a compelling case if you are looking to diversify and strengthen your portfolios. Here are a few reasons why now could be an opportune moment:

Shifting market dynamics

Traditional markets face challenges from inflation, interest rate fluctuations, and geopolitical instability. Alternatives can provide exposure to sectors or strategies potentially  less impacted by these pressures.

Growth in private markets

Private markets are experiencing unprecedented growth, driven by innovation in technology, healthcare, and sustainable industries. These sectors present significant opportunities for long-term investors.

Increased accessibility

While alternatives were once the domain of institutional investors, advancements in fund structures and platforms have made them more accessible. At Brown Shipley, we ensure you benefit from this evolution.

Potential for inflation hedging

With inflation concerns persisting , tangible assets like real estate and commodities offer protection against eroding value, making them a valuable addition to your strategy.