In recent years, private investments have experienced significant growth, increasing from $4 trillion to $14 trillion over the past decade. This growth has been driven by institutional capital seeking differentiated returns and alpha generation.
As alternative investments have consistently outperformed global public markets over long time horizons, individual investors are now exploring these opportunities. Assets under management in alternative investments from individuals have reached approximately $4 trillion, with projections suggesting a potential rise to $12 trillion in the next decade. This rapid expansion indicates a significant shift in the investment landscape, as more individuals recognize the benefits of diversifying their portfolios with private market assets.
As the investor base broadens, it becomes important for individuals to approach alternative investments with careful consideration. Key themes to focus on include longer-term time horizons, appropriate sizing of investments, and diversification across both portfolios and alternative asset classes. This guidance is particularly relevant for high-net-worth investors, as new open-end funds are expanding access to private investments. Experts have been advising ultra-high-net-worth clients on how to grow and preserve their capital through alternative investments for over two decades, emphasizing the importance of aligning investment strategies with the appropriate risk profiles.
The trend of companies remaining private for extended periods is reshaping the investment landscape. With a decline in the number of U.S. public companies and an increase in private equity-backed companies, individual investors face a narrowing scope of opportunities if they limit themselves to public markets. Currently, a small percentage of companies with revenues exceeding $100 million are publicly traded, highlighting the potential for missed market opportunities. This trend is expected to continue as companies prefer the control, flexibility, and lower regulatory burdens associated with remaining private.
Investing in private markets offers advantages such as broader economic exposure, diversification, and the potential for alpha generation. However, these markets also come with unique challenges. Private investments typically require longer-term capital commitments, necessitating careful selection of investment vehicles and precise allocation sizing. Unlike public markets, private markets are less efficient, making it crucial for investors to commit to managers with consistent strategies and proven records of outperforming public markets over time.
For individual investors, successful alternative investing lies in diversification across various asset classes, managers, and funds. Experts recommend that ultra-high-net-worth clients allocate 20-30% of their overall holdings to alternatives, while high-net-worth investors might consider a target allocation of 10-15%. This strategic approach allows investors to spread their risk and enhance their portfolios over time. The introduction of innovative open-end investment vehicles has simplified the investment process, making it more accessible for individuals across different wealth brackets. Unlike traditional closed-end funds, these new vehicles require full capital upfront, often with significantly lower minimums. However, it is important to understand that while these open-end funds offer a degree of liquidity, they are not entirely liquid. Investors should be prepared for the possibility that full liquidity may not be available during unfavorable market conditions.
Given the complexities of private investments, individuals are encouraged to work with financial advisors who have access to wealth platforms featuring proven alternative managers. These advisors can provide valuable insights and resources to help investors navigate the diverse landscape of alternative investments. By monitoring multiple managers, they can assist in achieving effective diversification and aligning investment strategies with individual risk profiles.
As the demand for alternative investments continues to grow, retirement providers are likely to expand access to these opportunities within long-term investment plans. This trend will further democratize access to private markets, allowing a broader range of investors to benefit from the potential advantages of alternative investments. With companies choosing to stay private longer and the emphasis on portfolio diversification increasing, the landscape for individual investors is set to evolve significantly in the coming years.