The case for alternative assets

Global alternative assets, including hedge fund, private equity, private debt, venture capital, venture debt, real estate, infrastructure, and natural resource investment strategies, are expected to surpass $24.5 trillion by 2028, up from $16.3 trillion in 2023 (see Figure 1).1

Meanwhile, the private debt segment is expected to grow to $2.8 trillion by 2028, up from $1.5 trillion in 2023. For context, the market capitalization of all publicly traded companies in the United States totaled $50 trillion at the end of December 2023.2

Figure 1: Alternative asset market size ($trilions)

Source: Prequin

The growth in alternative assets has largely resulted from institutions and ultra-high-net-worth investors making outsized allocations to earn higher returns and benefit from the illiquidity, complexity, and market inefficiency premiums that alternative assets command. In addition, since alternative assets are privately negotiated and actively managed, they often offer better downside protection, further enhancing their performance. The table below compares historical and forecasted returns for various alternative asset classes

Figure 2: Historic and forecasted asset class performance (IRRs)

Source: Prequin

Alternative assets also help reduce risk, primarily as a result of the lower correlation in their performance to traditional assets. The chart below, sourced from a JP Morgan Asset Management research report, compares various construction scenarios to illustrate the benefits of adding alternative assets to improve a portfolio’s return and reduce its volatility (risk).

Figure 3: Asset allocation scenarios, annual returns and volatility

Source: J/P. Morgan Asset Management, date as of September 30, 2023.

Investing in alternatives also offers investors greater choice. For example, while the number of publicly traded companies in the United States has shrunk to approximately 3,7003, more than 30,000 companies are held in private equity fund portfolios.

1. Future of Alternatives 2028, Preqin. Total AUM excludes funds denominated in Yuan Renminbi, and to avoid double-counting, also excludes secondaries and funds of funds. Additionally, Preqin does not model private debt secondaries.
2. Total Market Value of the U.S. Stock Market, Siblis Research.
3. Nicole Goodkind, “America has lost half its public companies since the 19990s. Here’s why.” cnn.com, June 9, 2023.