Key Takeaways
- Alternative investments manage approximately $13.7 trillion globally (2023) and are projected to reach $24.5 trillion by 2028.
- Key characteristics: illiquidity (7–10 year lockups), complexity, higher fees ("2 and 20"), and access barriers (accredited investor status).
- The illiquidity premium has historically added 1–3% per year above comparable public market returns.
- Private equity has outperformed public markets by ~3–4% annually over 20 years, but with significant variation by fund quality.
- Individual investors should limit alternatives to 10–20% of their portfolio and prioritize low-cost, liquid options like publicly traded REITs.
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Test Your Knowledge
1.What is the approximate size of the global alternative investment industry as of 2023?
2.What does the "2 and 20" fee structure mean?
3.What net worth threshold is required for accredited investor status (excluding primary residence)?