Alternative Investments of high-net-worth individuals

It's no secret that the ultra-rich have access to the best alternative investments that are often unavailable to the average investor, such as expensive wine, fine art, and equity in private companies.

What may come as a surprise is just how much their portfolios are weighted towards these types of investments. Among ultra-high-net-worth investors (those with a net worth of at least $30 million), alternative investments make up 50% of assets, compared to just 5% for the average investor.

Loading paragraph...

alternative-investments — Image source: Getty Images.

Loading paragraph...

Financial Securities

A tradeable asset that holds monetary value.

Loading paragraph...

Data source: KKR (2024).
ASSETS	High-net-worth, asset allocation as a percent of AUM	Family offices, asset allocation as a percent of AUM
Cash	34%	11%
Alternatives	28%	42%
Equities	23%	32%
Credit	15%	15%

Alternative investments as a response to volatility

One of the main selling points of alternative investments is that they are a way to diversify portfolios to mitigate stock market volatility, and they can offer a hedge against inflation.

Despite market volatility and red-hot inflation in 2022, the majority of investors stuck to their alternative investment strategy, per the 2023 EY Global Wealth Research Report. Fifty-six percent made no change to their alternative investment approach, 27% added, and 17% invested less in alternatives.

Loading paragraph...

Data source: EY (2023).
INVESTMENT IN ALTERNATIVE INVESTMENT PRODUCTS IN RESPONSE TO MARKET VOLATILITY	PERCENT OF INVESTORS
More	27%
No change	56%
Less	17%

Asset allocation for high-net-worth families

High-net-worth family offices have 29% of their assets in listed equities, which make up the largest portion of their investments, broken down by subgroup, according to KKR's survey.

Private equity is next, with high-net-worth families allocating 27% of their assets to this type of alternative investment. And, like many Americans, they also put part (15%) of their assets toward investing in real estate and other tangible investments.

Family offices have pared their exposure to hedge funds since 2017 and equities since 2020. They’ve increased their allocation to real assets, which includes real estate, commodities, natural resources, and equipment.

Loading paragraph...

Data source: KKR (2024).
Asset Class	2017	2020	2023
Public equities	29%	31%	29%
Liquid credit	9%	10%	10%
Private equity, venture capital	24%	27%	27%
Private credit	6%	4%	4%
Hedge funds	12%	6%	6%
Real assets	11%	13%	15%
Cash	10%	9%	9%
Asset class	2017	2020	2023

Percentage of investors with alternative investments by net worth

EY classified investors into four groups based on their level of wealth. Alternative investment usage rises for each group, and among ultra-high-net-worth investors, 81% have alternative investments.

Loading paragraph...

Data source: EY (2021).
Net worth level	Current usage level of alternative investments	Estimated usage level by 2024
Mass affluent (< $1M) net worth	14%	32%
High-net-worth (≥ $1M net worth)	29%	46%
≥ $5M net worth	55%	68%
≥ $10M net worth	81%	85%

Percentage of investors with alternative investments by region

Interestingly, North America is the region with the lowest usage of alternative investments. This is most likely due to the strong historical performance of the stock market, since investors don't need to seek out alternatives to get a good return.

Loading paragraph...

Data source: EY (2021).
Region	Current usage level of alternative investments	Estimated usage level by 2024
Global	32%	48%
North America	18%	27%
Asia-Pacific	37%	61%
Europe	37%	54%
Middle East	55%	71%
Latin America	70%	79%

Percentage of investors with alternative assets by generation

Gen Xers are the most likely to have alternative investments, but that may not last much longer. The percentage of millennials who use alternative investments is expected to explode by 2024.

Loading paragraph...

Data source: EY (2021).
Generation	Current usage level of alternative investments	Estimated usage level by 2024
Millennial	32%	60%
Generation X	38%	54%
Baby boomer	26%	34%

Satisfaction with alternative investments

Younger investors and wealthier investors are more likely to be satisfied with the performance of their alternative investments, according to new data from EY.

Sixty-three percent of the millennial clients EY surveyed are happy with how their alternative investments have performed, compared to just 40% of baby boomers.

When it comes to wealth, 45% of clients EY describes as mass affluent are satisfied with their alternative investments’ performance, compared to 63% of very-high-net-worth clients and 69% of ultra-high-net-worth clients.

Overall, 48% of clients EY surveyed are satisfied with how their alternative investments have performed.

Loading paragraph...

Data source: EY (2023).
CLIENT TYPE	PERCENT SATISFIED WITH PERFORMANCE OF ALTERNATIVE INVESTMENTS
Millennial	63%
Gen X	49%
Baby boomer	40%
Mass affluent	45%
High net worth	47%
Very high net worth	63%
Ultra-high net worth	69%
All clients	48%

Loading paragraph...

Data source: Author's calculations. Annualized returns.
Index	2023	Past 3 years (2021-2023)	Past 5 years (2019-2023)
S&P 500	24.70%	8.80%	14.00%
Cambridge Associates U.S. Private Equity Index	9.30%	14.10%	17.90%
Cambridge Associates U.S. Venture Capital Index	-3.40%	6.70%	18.10%
Bloomberg Barclays U.S. Aggregate Bond Index	5.53%	-3.31%	1.11%
Cliffwater Direct Lending Index	12.31%	--	9.09%
NCREIF Property Index*	-7.90%	4.58%	4.33%
Barclay Hedge Fund Index	9.27%	0.04%	0.07%

Loading paragraph...

Data source: Knight Frank (2024).
Item	12-month change	10-year change
Rare whisky	-9%	280%
Wine	1%	146%
Watches	5%	138%
Knight Frank Luxury Investment Index	-1%	100%
Art	11%	105%
Cars	-6%	82%
Handbags	-4%	67%
Coins	4%	56%
Furniture	-2%	40%
Jewelry	8%	37%
Colored diamonds	2%	8%

Loading paragraph...

Institutional investors plan to increase their alternative investments

The vast majority (81%) of the institutional investors surveyed by Preqin intend to increase their allocation of funds to alternative investments by 2025.

Just 3% intend to decrease their allocation to alternative investments in that time frame.

Loading paragraph...

Data source: Preqin (2020).
Institutional investors' plans for allocations to alternative investments by 2025	Percentage
Will increase significantly	26%
Will increase	55%
Will stay the same	16%
Will decrease	2%
Will decrease significantly	1%

Institutional investors' plans for allocation to alternative investments by asset

Private equity is the best-performing alternative investment, and it's also where institutional investors plan to invest more, with 79% saying they'll increase their asset allocation by 2025.

Loading paragraph...

Data source: Preqin (2020).
Institutional investors' plans	Private equity	Private debt	Hedge funds	Real estate	Infrastructure	Natural resources
Will increase significantly	23%	16%	8%	10%	15%	6%
Will increase	56%	51%	27%	41%	51%	29%
Will stay the same	17%	25%	34%	33%	24%	38%
Will decrease	3%	6%	19%	13%	6%	19%
Will decrease significantly	1%	2%	13%	2%	3%	8%

From alternative to mainstream

With ultra-high-net-worth investors devoting half their portfolios to alternative investments, it's clear that these investments are actually mainstream for the wealthy. But those are people who have access to more investment options because they're far above the average net worth. What about alternative investments for retail investors?

Among fund managers surveyed by Preqin, 15% said they offer retail investors access to alternative investments and plan to expand those offers. Another 17% didn't currently offer these investments to retail investors but planned to do so in the future.

Retail investors already have access to many types of alternative investments, such as real estate, luxury goods, and cryptocurrency. Real estate investment trusts (REITs) have become a popular way for everyday individual investors to tap into the real estate market. And there are new alternative investment funds and platforms popping up to give the average investor the ability to invest in shares of fine wine, art, cars, and so on.

For retail investors who want to add more alternative investments to their portfolios, more and more options are becoming available. And for the ultra-wealthy, alternative investments will likely continue to be an extremely popular way to invest.

Sources

Chartered Alternative Investment Analyst Association (2020). "The Next Decade of Alternative Investments: From Adolescence to Responsible Citizenship."
EY (2021). "2021 EY Global Wealth Research Report."
EY (2023). “2023 EY Global Wealth Management Research Report.”
Financial Planning Association (2023). “The 2023 Trends in Investing Survey.”
KKR (2024). “Loud and Clear.”
Knight Frank (2024). “The Wealth Report.”
Preqin (2020). "The Future of Alternatives 2025."
Preqin (2020). "The Past, Present, and Future of the Alternative Assets Industry."
Preqin (2023). “Preqin Global Report 2023: Alternative Assets.”
Preqin (2024). “Global alternatives markets on course to exceed $30tn by 2030 — Preqin forecasts.”

Loading paragraph...

About the Author

Jack Caporal is the Research Director for The Motley Fool and The Motley Fool Money. His work focuses on uncovering and analyzing trends that shape personal financial decisions across the United States, to help people become smarter, happier, and richer. Jack's primary research has been featured across top-tier television networks, and accredited publications like the New York Times, Bloomberg, CNBC, and has been cited in Congressional testimony. He previously followed business and economic trends as a reporter and policy analyst in Washington, D.C. Jack enjoys spending time in the mountains and cheering for his hometown Boston sports teams.

TMFJackCap

Jack Caporal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Alternative Investments of the Ultra-Wealthy in 2024

Alternative investments are going mainstream.

Financial Securities

Alternative investments as a response to volatility

Asset allocation for high-net-worth families

Percentage of investors with alternative investments by net worth

Percentage of investors with alternative investments by region

Percentage of investors with alternative assets by generation

Satisfaction with alternative investments

Institutional investors plan to increase their alternative investments

Institutional investors' plans for allocation to alternative investments by asset

From alternative to mainstream

Sources

About the Author

Premium Investing Services

Key findings

What are alternative investments?

Examples of alternative investments

Alternative investment use among investors

Alternative investments as a response to volatility

Asset allocation for high-net-worth families

Percentage of investors with alternative investments by net worth

Percentage of investors with alternative investments by region

Percentage of investors with alternative assets by generation

Satisfaction with alternative investments

Performance data for alternative investments and the S&P 500

How luxury goods fare as alternative investments

Digital assets as alternative investments

Alternative investments are poised for growth

Institutional investors plan to increase their alternative investments

Institutional investors' plans for allocation to alternative investments by asset

From alternative to mainstream

Sources