Wealth Insights

Types of alternative investments: Expanding the investment toolkit

Get a deeper understanding of the risks and benefits of alts.

There is more to investing than stocks, bonds and cash. A wide range of alternative investments, such as hedge funds and private real estate, has become increasingly popular as a way to further diversify risk and expose capital to other asset classes.

These non-traditional assets are generally less liquid than traditional investments, though some investors value them for diversification, potential inflation protection or steady income. Due diligence is essential to ensure the investment fee structure and tax treatment make sense for your situation.

Once limited mainly to institutions, certain alternative investments have become more accessible to qualified investors. We break down some of the most common types of these investments.

Hedge funds

Hedge funds pool investor capital and are professionally managed, much like mutual funds, but with far fewer restrictions. Hedge fund investments may expose an investor to structure complexity and they may offer limited transparency. Strategies vary widely, and risk levels tend to be high, which is why hedge funds are generally limited to accredited investors and institutions such as endowments and pension funds. Potential benefits include the chance for higher returns and potential added diversification, but these must be weighed against the fund’s higher risk profile.

Private equity

Private equity refers to capital invested directly in private companies. Most investments are made through private equity firms, which pool money from multiple investors to build portfolios of companies. These firms typically focus on either revitalizing mature businesses or backing fast growing startups. Because private equity funds often require multimillion dollar commitments and can tie up capital for a decade or more, they are far more accessible to institutions than to individual investors. Today, private equity firms manage assets worth trillions of dollars. Venture capital, a subset of private equity, concentrates specifically on startups with high growth potential, often in the tech sector. One advantage for private equity investors is exposure to closely-held, emerging companies with the potential to provide a greater investment return. However, private equity investments may expose an investor to various types of risk and illiquidity.

Private credit

Private credit involves lending directly to businesses, and occasionally individuals, that may not qualify for bank loans or public financing. Because the risk of nonpayment can be higher, investors can potentially earn higher interest rates than they might find in traditional bond markets. Private credit resembles bond investing, but the loans aren’t publicly traded and are usually unavailable to everyday investors. Private credit may provide income opportunities, though returns can vary and are not guaranteed.

Private real estate

A private real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate and is not traded on public stock exchanges. These REITs are typically exempt from full SEC registration and are generally offered through private placements to institutional or accredited investors. Shares aren’t easily traded, which means investors usually have to commit for the long term. Private REITs may exhibit less frequent valuation changes because they are valued through periodic appraisals rather than public markets. They can provide exposure to sectors like apartments, offices and data centers and have the potential to offer steady income through rents and property sales.

Private infrastructure

Private infrastructure investing involves putting capital into essential assets such as toll roads, utilities, energy grids, telecommunication networks and data centers. These investments may offer cash-flow opportunities when supported by long-term contracts, though cash flows aren’t guaranteed. Revenues can adjust with inflation, making them a potential inflation hedge. Because infrastructure returns don’t closely track public markets, they can potentially help diversify a portfolio. Historically, demand for basic services tends to remain steady even during economic downturns.

Wealth planning with intention

In the end, alternative investments can play a meaningful role for qualified investors who understand their trade-offs. While these assets often come with higher complexity and lower liquidity, they can also open doors to strategies beyond traditional publicly traded investments.

“Alternative options such as private equity and private credit may provide access to additional markets and strategies for investors,” says Bryan Koepp, Wealth Planning Executive. “Although these options are often illiquid, diversification through the use of alternatives may provide a positive impact on an investor’s wealth plan, so long as their structure coincides with the investor’s goals, investment objective and risk tolerance.” Approached thoughtfully, alternatives can serve as complements to a broader wealth strategy, supporting long-term objectives.

Philosophy on alternative investments

“Alternative options such as private equity and private credit may provide access to additional markets and strategies for investors. Although these options are often illiquid, diversification through the use of alternatives may provide a positive impact on an investor’s wealth plan, so long as their structure coincides with the investor’s goals, investment objective and risk tolerance.”

—Bryan Koepp, Wealth Planning Executive

By the numbers

• $1.7 Trillion: Global private credit market size
  Source: S&P Global Market Intelligence's 2026 Private Markets Outlook
• $5 Trillion: Global hedge fund market size
  Source: Bloomberg
• $5.64 Trillion: North American private equity (PE) market size
  Source: Ocorian