‘Alternative investments’ is an umbrella term used to describe investment options that fall outside of traditional public market instruments such as stocks, bonds, and cash.

These assets are typically categorised as either intangible or tangible:

• Intangible alternative assets include private equity, venture capital, hedge funds, funds of funds, and increasingly, cryptocurrencies.

• Tangible alternative assets include real estate, commodities, natural resources, and collectibles such as art, wine, or rare coins.

While motivations vary, investors typically allocate to alternatives for three core reasons: portfolio diversification, potential for outsized returns, and hedging against public market volatility. Because many alternative assets exhibit low correlation with traditional markets, they can enhance risk-adjusted returns over time.

Portfolio allocation to alternatives generally ranges from 5% to 25%, depending on the investor’s risk profile, liquidity needs, and investment objectives. A commonly cited principle, sometimes referred to as the 5% rule, suggests allocating at least 5% of a portfolio to alternatives to achieve meaningful diversification benefits.