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Alternatives are investments in assets other than stocks, bonds and cash (for example, private equity, hedge funds, real assets, commodities, etc.) or investments using strategies that go beyond traditional ways of investing (such as long/short strategies). They provide more options for investors to increase their sources of returns, improve portfolio diversification and manage risk.

Liquid alternatives provide investors with a flexible investment approach through exposure to various asset classes and strategies. These are alternative investments in the form of a mutual fund or exchange-traded fund, which offer the additional benefit of daily pricing.

Illiquid alternatives are typically investments in assets through private markets, for example real estate, private debt, and private equity. While they may offer reduced portfolio liquidity, they may also enhance expected returns.

Alternative assets can’t be classified as one of the conventional investment types such as equities, bonds or cash. The returns of alternative assets are often uncorrelated or less correlated with traditional assets. Some examples of alternative assets include currencies, commodities and real estate.

Alternative strategies are investment vehicles structured to hold a wide range of financial assets—both traditional and non-traditional—that are managed using nonconventional methods (e.g. short selling). Some examples of alternative strategies include private equity and private debt.

The recommended allocation varies based on time horizon and risk appetite, but a 30% allocation is often considered an adequate exposure that allows for capital appreciation and downside protection. This makes the estimated portfolio split more in line with a 50/30/20 allocation versus a traditional 60/40 split.

Private markets are considered illiquid, meaning it can be difficult to sell assets quickly, especially when compared to traditional asset classes.

There are several major asset classes that make up private markets. They are: private equity, venture capital, private credit, private REITs (real estate investment trusts), infrastructure, real assets and natural resources, and hedge funds. As of 2025, the top private market asset classes based on global assets under management (AUM) are: private equity, private REITs and private credit.^ⓘ

Like equities and fixed income, there are various private market asset classes with varying levels of volatility. An investor who prefers to experience less volatility may want to consider private credit. If an investor has a higher volatility appetite and longer-term investment horizon, then private equity may be a good fit.