The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
An imminent big-milestone birthday has the Brilliant Investment Group (BIG) executive chair thinking about what he’d like to see this year.
Alternative allocations: The insiders community analyses the trade-offs in 2025
Twice a year, The Inside Network holds events that we design to allow us and our attendees to move beyond theory and understand the practical realities advisers face when considering alternative investments. By capturing the votes, sentiments and reasoning of our insiders community, we can draw meaningful conclusions about how the industry is evolving and where advisers see the greatest opportunities and risks.
In a financial landscape marked by volatility and shifting correlations between traditional asset classes, advisers are increasingly reconsidering the role of alternative investments. Our Alternatives Symposium was the perfect environment to survey adviser sentiment towards this asset class, and it provided a comprehensive snapshot of industry perspectives, revealing both enthusiasm and caution in equal measure.
The first key trend is that advisers are gradually warming to alternatives, though their implementation strategies vary widely. While only 13 per cent of respondents allocate more than 21 per cent of portfolios to alternatives, a significant 58 per cent indicated plans to increase allocations in 2025. This marks a decisive shift towards a more diversified approach as equities and bonds prove less reliable in mitigating risk.
Defining the Role of Alternatives
A major theme emerging from the discussion was the importance of defining the precise role of alternatives within a portfolio. Almost half (47 per cent) of advisers prefer a ‘carve-out’ model, segmenting alternatives into dedicated sleeves rather than blending them within traditional asset classes. This method allows for clearer risk-return expectations and more targeted portfolio management.
However, there remains considerable debate around benchmarks for performance measurement. A near-even split exists between those who measure alternatives against CPI-plus targets (35 per cent), equity market comparisons (31 per cent), or alternative-specific benchmarks (34 per cent). This divergence underscores the challenge of setting client expectations appropriately in an asset class that varies widely in liquidity, risk, and return characteristics.
The Liquidity Trade-off
One of the most consistent concerns voiced by advisers was the liquidity trade-off. Nearly 60 per cent of respondents found it ‘somewhat challenging’ to introduce nuanced alternative strategies into client conversations, with liquidity constraints emerging as a key sticking point. For many clients, the illiquidity premium inherent in private markets remains an unfamiliar concept, despite its historical ability to enhance long-term returns.
Private credit and private equity, in particular, continue to attract interest, but liquidity concerns loom large. While 68 per cent of advisers allocate to private credit primarily for downside protection and diversification, only 9 per cent of client portfolios allocate more than 20 per cent to private equity. Despite its compelling return profile, the lack of immediate liquidity has prevented wider adoption.
Private Infrastructure and the Real Asset Appeal
Advisers also showed an increased appetite for private infrastructure, with 51 per cent expecting allocations to rise over the next three years. The asset class’ appeal lies in its inflation-hedging properties and stable income generation, cited by 42 per cent of respondents as the primary reason for inclusion in portfolios. Within infrastructure, renewable energy and the energy transition sector garnered the most interest (41 per cent), reflecting broader thematic investment trends.
The rising popularity of real assets, including infrastructure, is part of a broader reconsideration of traditional diversification strategies. With bonds losing their historic role as reliable equity hedges, 38% of advisers now view alternative risk premia strategies as the most effective diversifier for downside protection—outpacing both bonds (24%) and real assets (26%).
Thematic Investing: Opportunities and Risks
Thematic investing within alternatives is gaining traction, but with caution. While more than half of advisers reported client interest in AI, digitisation, and biotech innovation, liquidity constraints and the challenge of finding high-quality fund managers were cited as major obstacles. Nearly 41 per cent of advisers identified manager selection as the biggest challenge in implementing thematic investing, reinforcing the need for rigorous due diligence.
Given the potential for thematic bubbles, advisers are also wary of client over-exuberance. As one adviser noted, thematic strategies often gain mainstream attention after a period of strong past performance – meaning investors frequently enter late, exposing them to potential mean reversion. Ensuring thematic allocations fit within a broader strategic framework remains crucial.
Education and Execution Remain Key Challenges
The adoption of alternatives is not merely a question of conviction – it is also a question of communication. Advisers overwhelmingly identified client education (43 per cent) and portfolio design (57 per cent) as the two most important factors in avoiding poor performance outcomes. Additionally, 58 per cent reported that due diligence was the most common challenge in deploying client capital to alternatives.
Despite these hurdles, enthusiasm for alternatives continues to grow, driven by the need for better risk-adjusted returns in an evolving market. The key for advisers will be to bridge the gap between conceptual acceptance and practical execution – educating clients on the merits of alternative assets while ensuring disciplined, risk-aware implementation.
As 2025 unfolds, our community’s approach to alternatives will likely mature further, with more sophisticated allocation strategies and better integration into traditional portfolios. While challenges remain, advisers are increasingly acknowledging that in today’s market, a well-structured alternatives sleeve is no longer an optional enhancement – it is a necessity.
