What are alternative investments and what options exist beyond hedge funds?

• Alternative investments are projected to reach $30 trillion in assets under management by 2030, highlighting their expansion potential.
• 92% of financial advisors already invest in alternative assets, with a focus on private debt and private equity, according to Mercer.
• Additionally, 86% of advisors use alternative assets as a way to stand out in the market.
• FlexFunds’ solutions facilitate access and diversification of investment products for asset managers. For more information, feel free to contact our experts.

In an environment marked by global uncertainty and concerns that trade tensions could lead to a recession, investors are relying more than ever on diversification to mitigate risk and capitalize on market inefficiencies—making alternative instruments increasingly relevant. Below, FlexFunds outlines the key aspects of these instruments.

Alternative investments have become a way to hedge against factors such as inflation and offset the effects of market volatility. For this reason, they are often heavily considered in portfolios managed by asset managers worldwide today. 

This type of investment encompasses a broad set of assets that fall outside the spectrum of traditional vehicles, such as bonds, equities, or cash. They primarily aim to enhance diversification and maximize returns.  

Sources like BlackRock¹ typically classify alternatives into two main groups: those that invest in non-traditional assets, and those that, while targeting traditional assets, do so through non-traditional methods.

Main types of alternative investments

Hedge Funds

These instruments aim to generate returns regardless of market conditions and often leverage market inefficiencies through non-traditional strategies such as short selling and leverage.

The first concept—short selling—involves selling a borrowed asset believed to be overvalued. The expectation is that its price will drop over time, allowing it to be repurchased at a lower cost, generating a profit from the difference. Leverage, on the other hand, is a strategy that, simply put, involves using debt to increase investment capacity and potentially amplify returns.

According to Preqin², global hedge funds’ assets under management (AUM) reached $4.9 trillion in Q3 2024, representing 8% growth since the beginning of the year. Their returns of 10% in Q3 2024 trailed global equities (19%) but outperformed government bonds (4%).

Alternative investments are considered a way to mitigate market volatility, offer diversification, and improve portfolio performance.

Private capital 

Private capital, which refers to investing in companies that are not publicly traded. This can take the form of injecting capital into growth-stage businesses—known as venture capital—or acquiring stakes in private companies to enhance their value and later sell them, referred to as private equity.

Also included in this more liquid category of vehicles are exchange-traded funds (ETFs), which replicate both the composition and performance of benchmark financial indices and “can be bought and sold on the stock exchange like publicly traded company shares,” explains BBVA³.

Private debt, infrastructure and real assets

Other options include private debt instruments, which refer to financing provided to companies via private credit, securitizations, and other structures. In addition to these instruments, physical infrastructure assets and real estate, as well as commodities, are often included in the broader definition of alternative investments.

FlexFunds’ role in providing access to alternative investments

FlexFunds plays a key role amid the rising demand for alternative investments by offering solutions for the creation and launch of investment vehicles (ETPs) for asset managers, simplifying both distribution and access to international private banking.

Through its platform, managers can structure diversified strategies and enhance fund liquidity, optimizing global distribution and reaching a broader investor base.

In a market where alternative assets continue to gain prominence, FlexFunds enables advisors and managers to differentiate themselves by offering more accessible and cost-efficient products. Its expertise in asset securitization and the creation of structures such as FlexPortfolio, Flex Private Program, and FlexFeeder reinforces its position as a strategic partner in an increasingly sophisticated investment environment.

FlexFunds specializes in the securitization of both alternative and liquid assets, providing solutions for private funds, real estate investment, hedge funds, and private lending. It also facilitates access to stocks, bonds, ETPs, mutual funds, options, futures, and FX.

Projections for alternative investments

The global alternative asset industry is projected to reach $30 trillion in assets under management (AUM) by 2030, driven by segments like the private equity market, according to Preqin’s Future of Alternatives 2029 report⁴.

Growth projections for alternative instruments mark an improvement over 2023, when global AUM in the industry reached $16.8 trillion.

This trend in alternative assets is being driven, among other factors, by greater access for individual investors to the market, as well as the expansion of the private wealth management sector.

One of the top-performing segments in the coming years is expected to be private equity, with AUM projected to more than double from $5.8 trillion in 2023 to $12 trillion by 2029, according to the report. 

Additionally, AUM for global hedge funds is forecast to exceed $5.7 trillion by 2029, with an annualized growth rate of 4% during that period.

Alternative assets under management are expected to reach $30 trillion by 2030, driven by private equity growth.

Growing demand for alternative assets

As interest rates begin to stabilize globally, alternative instruments are re-emerging on the radar of asset managers seeking to integrate them into investor portfolios amid market volatility and in search of better returns than traditional vehicles. 

According to a survey conducted by Mercer and CAIS⁵, 92% of financial advisors are already incorporating alternative investments into client portfolios, while 91% plan to increase their allocations in the coming years. Advisors continue to prioritize private debt (89%), private equity (86%), real estate (85%), and hedge funds (54%) in their investment strategies. 

Infrastructure is also attracting growing interest, with more than half of advisors planning to increase their allocations in this sector—a significant rise compared to 32% in 2023, according to the survey of 550 financial advisors.

One of the report’s conclusions is that advisors are increasingly committed to boosting their investments in alternative assets—not only as tools for diversification, but as vehicles to help clients meet financial goals and gain a competitive edge.

The rising demand for alternative investments reflects their strategic role in wealth management, as managers and advisors prioritize their integration into portfolios.

In fact, 86% of financial advisors stated that access to alternative instruments helps them stand out from competitors, while 63% said it helps attract new clients and/or increase market share with existing clients (53%).

In summary, alternative investments have gained relevance as tools for diversification and protection against market volatility. Assets such as hedge funds, private debt, ETFs, and private equity are drawing increased interest from managers and financial advisors in today’s environment.

The projected growth of the global alternative asset industry underscores its increasingly strategic role in wealth management. Moreover, solutions that support distribution and help investment products scale—such as those offered by FlexFunds—are broadening access to these instruments, allowing more managers to harness their benefits in a constantly evolving financial landscape.

Sources:

• ¹https://www.blackrock.com/co/educacion/inversiones-alternativas#alternative-investments
• ²https://www.preqin.com/about/press-release/hedge-funds-return-10-globally-in-2024-while-proving-diversification-worth-preqin-reports
• ³https://www.bbva.com/es/salud-financiera/que-son-los-fondos-cotizados-o-etf-y-que-ventajas-tienen/
• ⁴https://www.preqin.com/about/press-release/global-alternatives-markets-on-course-to-exceed-usd30tn-by-2030-preqin-forecasts
• ⁵https://www.mercer.com/en-us/insights/investments/financial-intermediaries/the-state-of-alternative-investments-in-wealth-management-2025/