Today, alternative investments are making their way into mainstream investing, whether as non-publicly traded alternative investments or their more liquid counterparts.
Webster's Dictionary defines the word "alternative" as "offering a choice outside the established system." But today, alternative investments are making their way into mainstream investing, whether as non-publicly traded alternative investments or their more liquid counterparts. According to a recent Deloitte study, a turning point for alternative investments is already occurring in 2014 and the appetite for investors has never been greater.1
Despite increased regulatory scrutiny, investor demand continues to grow for non-liquid alternative investments due in part to the challenging interest rate environment. Total assets under management in the global alternative investments industry now exceed $6 trillion, growing by more than $600 billion in 2013. Global private equity, which includes private infrastructure and real estate, also reached $3.5 trillion last year.2 Hedge fund assets under management grew for the sixth consecutive quarter to a record $2.6 trillion in 2013.3
While much of this growth has been fueled by institutional investors, it has also been driven by affluent and high-net-worth investors looking for greater diversification to mitigate risk. Individual investor demand for liquid alternatives has surged, with flows growing from over $14 billion in 2012 to $40 billion in 2013, according to Morningstar® data. This suggests an even broader investor base is highly interested in going beyond traditional asset classes to achieve diversification. In addition, the growth in non-traded REITs within the mass affluent segment reflects the desire for income that cannot be satisfied in the fixed income market today.
1 Deloitte, 2014 Alternative Investment Outlook: Championing Growth, Finding Agility in Uneven Conditions