is only 6 % for moderate-risk clients.
Jon Diorio, who heads alternatives for the U. S. wealth management business at BlackRock, the world’ s biggest asset manager, points out that on average wealth clients have only about 3 % to 4 % of assets in the estimated $ 1.5 trillion private markets, while mass affluent clients have only about 1 %. That should change, he says.
“ The typical client is under-allocated,” he says.“ Given the fact that volatility is out there and the need for diversification is very present, we’ re recommending that the typical wealth client and financial advisor look to put more into alternatives going forward.”
The investment structures for alternatives range from highly liquid mutual funds or exchange-traded funds to highly illiquid limited partnerships. That means advisors don’ t have to lock clients’ assets up for years like they once did.
Diversity Among Alts Is Critical
Jonathan Farr, a private markets director at Homrich Berg in Atlanta, says it’ s“ absolutely critical” that investors diversify their allocations to alternatives across asset classes and managers. Since different alternatives play different roles in a portfolio, advisors must be clear about their clients’ goals and then pick assets and strategies to match. Clients wanting longterm risk-adjusted returns should consider private equity investments, for example. Private credit, on the other hand, offers a steady income stream and higher yields than traditional fixed income.
Farr says investors on his firm’ s platform in the private credit space have access to an array of offerings with different managers. Homrich Berg’ s allocation to alternatives varies greatly based on clients’ risk appetite, flexibility to pursue illiquid offerings, and other client-specific factors.( Homrich Berg has $ 18 billion in assets under management.) Those private credit investors, Farr explains, can expect net returns in the low double digits for vanilla strategies and 15 % or more for more high-octane private credit strategies in this environment.
Given the broad ranges of investments and strategies, it’ s important that advisors educate investors about the unique risks and benefits of each class. The return streams, for example, aren’ t always a straight line. And the management selection is also critical, especially in areas such as real estate, private debt and equity.
Lido Advisors has constructed a balanced, conservative alternatives platform for its clients, mainly across real estate equity and debt, private equity and credit. Walker Williams, the chief market strategist at the Los Angeles-based firm, says most of its wealthy clients have anywhere from 15 % to 30 % of their portfolios in alternatives.
Lido also uses various strategies, managers and solutions, Williams says, adding that the firm aims to be“ thoughtful and paced” with allocations and seek efficient risk-adjusted returns from the right opportunities in the various sectors and asset classes. Success is determined by finding opportunities with sound underwriting and then picking managers who have endured past economic stress cycles.“ In building a robust alternative portfolio, a client should have exposure to different types of idiosyncratic return streams and risks,” he says.
Preqin, an alternative assets analytics firm, projects that assets in the global alts industry will reach $ 29.2 trillion by 2029, rising from $ 16.8 trillion in 2023. The increasing embrace of alternatives by retail investors— in a space dominated by institutions and high-net-worth investors— is driving this growth.
In a recent survey of 117 asset managers across the globe, Bermuda-based Apex documented the surging retail interest in private markets. The firm reported that 86 % of private equity firms expect alternative investments to dominate retail portfolios over the next five years. The desires for diversification and for higher returns are the main factors drawing many retail investors to the space, Apex said in the report.
Returns Spurring Alts Adoption
There’ s plenty of data showing that, indeed, alternatives and private markets perform better than their public cousins when it comes to risk-adjusted returns over the long term.
In January, J. P. Morgan Asset Management’ s global market strategist Meera Pandit wrote that a hypothetical portfolio with 50 % in equities, 20 % in bonds and 30 % in alternatives registered volatility of 9.4 % and an annualized return of 9.6 % from the first quarter of 1990 to the second quarter of 2024. The performance of the typical 60 / 40 portfolio lagged on both metrics, with a higher volatility reading of 9.7 % and lower return of 8.7 %.
The Apex report said that private equity funds have outperformed public equities in every vintage year( when a fund starts making investments) since 2000 by an average of 1,079 basis points, and private credit outpaced public leverage loans in every vintage year by an average of 625 basis points.
The investment structures for alternatives range from highly liquid mutual funds or exchange-traded funds to highly illiquid limited partnerships.
Is all of this excitement getting overdone? As mentioned above, private equity fund performance hasn’ t been so hot of late. In its“ Global Private Markets Report 2025,” McKinsey & Co. reported that private equity funds generated a 3.8 % internal rate of return in the first nine months of 2024 and a 5.7 % gain for all of 2023. That performance trailed the S & P 500’ s 23.3 % return for 2024 and its 24.2 % return for 2023.
Sectors of Opportunities But the long game is key in this asset class( especially when the lockup periods can be 10 years). And the bulls see plenty of ways to score long-term gains in this diverse space. Williams at Lido says he’ s exposing his clients to, among other things, diversified private credit and private real estate, as well as some pri-
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