Did you know that over 85% of global companies are privately owned? Yet most portfolios only invest in public markets. That means many investors are missing out on a universe of opportunities beyond traditional stocks and bonds.
Why Consider Alternatives?
Most investors focus on publicly traded stocks and bonds because that’s what they’ve been told is “normal.” But there’s a broader landscape worth exploring—alternative investments. These include private equity, private credit, private real estate, and private infrastructure. Each offers unique benefits such as reducing volatility, providing access to private market growth, and offering inflation protection and income stability. Incorporating these strategies can help smooth returns during market uncertainty and diversify risk in ways traditional investments cannot.
Private Equity: Access Growth Before It Goes Public
In 1997, there were over 6,500 publicly traded companies in the U.S. Today, that number is closer to 4,700. Meanwhile, there are 22,000 U.S. companies generating $100 million or more in revenue, and only about 3,000 are public. Globally, approximately 85% of companies are privately owned. Limiting your investments to public markets is like restricting yourself to our solar system when there’s an entire universe out there. Private equity gives investors access to innovation and growth before companies go public. While these investments are illiquid and long-term, they have historically delivered strong returns over time.
Private Credit: Attractive Yields and Risk Mitigation
Private credit refers to privately negotiated loans between a borrower and a non-bank lender. These investments can offer higher yields than public credit markets, protective loan structures that mitigate risk, and customized financing that provides flexibility and speed for borrowers. The private credit market is enormous, estimated at $40 trillion globally, much of it being investment grade. Institutional investors have long used private credit for its combination of attractive yields and lower correlation to stocks and bonds, without necessarily taking on additional credit risk.
Private Real Estate: Tangible Assets with Inflation Protection
Private real estate investments, such as commercial properties, industrial warehouses, multifamily housing, and logistics centers, provide stable cash flows and inflation-sensitive income. Unlike publicly traded REITs, private real estate tends to have a lower correlation with equity markets, making it a powerful tool for diversification. Recent trends like reshoring, manufacturing and the need for more resilient supply chains post-COVID have created unique opportunities in this space.
Private Infrastructure: Defense, Inflation, and Diversification
Infrastructure assets deliver essential services such as energy, transportation, data, utilities, toll roads, airports, and shipping ports. Many of these assets have revenues linked to inflation and operate under long-term contracts or regulated frameworks, making them resilient to economic cycles. Private infrastructure also offers low correlation to equities and bonds, reducing overall portfolio risk while providing defensive characteristics.
Final Thoughts
One of the most compelling reasons to incorporate alternatives is their ability to diversify portfolio risk. These assets often behave differently from traditional investments, helping to smooth returns during market volatility. They can also provide access to private market growth and inflation-sensitive income streams that traditional investments may not offer.
Important Disclaimers:
- Alternative investments are typically illiquid, meaning they cannot be easily sold or exchanged for cash.
- They often require a long-term commitment.
- These investments may involve complex structures, and limited transparency compared to public markets.
- They are generally suitable for accredited or qualified investors and should only be considered as part of a well-diversified portfolio.
- Past performance is not indicative of future results, and all investments carry risk, including the potential loss of principal.