Alternative investments have been getting a lot of attention recently. “Alts” are still somewhat opaque, and mostly the domain of billionaires and university endowments. But new avenues for retail investors to invest in the space are popping up too.

This week we are diving into what alternatives actually are, and why they may (or may not) be worth considering for your portfolio.

What Happened In Markets This Week

Here’s a quick summary of what’s been going on:

🤖 Anthropic sparks an existential crisis for software stocks ( InvestingLive )

• What happened : Anthropic released several new tools, seen as challenging the moats protecting major software stocks. First came Claude Cowork AI Agent which allows users to build their own automated workflows rather than relying on SaaS platforms. This is seen as a threat to major platforms like SAP , Salesforce and Docusign .

  • Next came a plugin that allows the Cowork agent to review and draft legal docs. This threatens several legal software platforms like Wolters Kluwer and LegalZoom.com .
  • Finally, Anthropic released Claude Opus 4.6 , highlighting its ability to perform complex financial analysis and achieving top benchmark rankings. Following the launch, shares in financial data and analytics firms such as FactSet , Moody’s , and S&P Global fell sharply.

• How it impacts investors : Markets are starting to question how defensible high-margin software businesses really are as AI gets more powerful. That uncertainty is showing up as short-term volatility, with investors repricing stocks that look more exposed to automation risk.

• Next steps : Use the Stock Screener to compare software companies by size, profitability, and balance sheet strength. Some companies caught up in the sell-off may in fact have durable moats.

₿ Strategy selloff deepens as Bitcoin slide pressures balance sheet ( TheStreet )

• What happened : Strategy (formerly MicroStrategy) shares have fallen about 70% from their peak as Bitcoin dropped to around US$65,000, leaving the company with roughly US$4 billion in unrealized losses.
• How it impacts investors: It’s a reminder of the risk in using highly leveraged stocks as a proxy for crypto exposure. Bitcoin’s volatility is now flowing directly through to Strategy’s balance sheet and refinancing outlook, and that stress could easily spill over to other crypto-linked names.
• Next steps : Review Strategy’s risk profile and balance sheet metrics to determine whether the company remains healthy despite the fall.
  • You may also learn more about the risks of investing in Bitcoin treasury companies .

🚗 Volkswagen overtakes Tesla in Europe as EV competition ramps up ( Yahoo Finance )

• What happened : Volkswagen overtook Tesla as Europe’s top electric vehicle seller in 2025, driven by a 56% rise in registrations led by the ID.7 sedan. Tesla registrations fell 27% over the same period.
• How it impacts investors : It’s a sign that Europe’s EV market is heating up, as traditional carmakers claw back market share. That puts more scrutiny on Tesla’s growth outlook in mature regions.
• Next steps : Compare Tesla and European automakers to see how sales trends and growth expectations differ across the EV landscape.

💶 ECB pauses at 2% as strong euro complicates growth outlook ( MarketPulse )

• What happened : The European Central Bank kept interest rates unchanged at 2% for a fifth straight meeting as inflation fell to 1.7%, below its target. Policymakers signaled a neutral stance, with attention shifting from inflation risks to slowing economic growth and a stronger euro.
• How it impacts investors: Steady rates bring a bit more certainty for bonds, but a firmer euro could start to hurt earnings for Europe’s big exporters. That could shift market focus away from inflation and toward how growth is actually tracking.
• Next steps : Use regional and sector tools to assess which European stocks are more exposed to currency strength and slower growth.

🤖 Oracle raises $45 billion to fund massive AI infrastructure push ( The Wall Street Journal )

• What happened : Oracle raised more than US$45 billion through bond sales and equity issuance to fund its AI-focused “Stargate” infrastructure project with OpenAI and SoftBank. Investor demand for the bonds exceeded US$129 billion, marking one of the largest capital raises tied to AI infrastructure.
• How it impacts investors : This shows how capital-intensive the AI race has become, favoring companies with deep access to debt and equity markets.
• Next steps : Review Oracle’s cash flow outlook and leverage metrics or explore other cloud and infrastructure stocks investing heavily in AI capacity.

Should you hit the ALT button on your portfolio?

For decades, a portfolio consisting of stocks, bonds and a little cash has been sufficient to grow wealth for most investors. Other types of investments have always been around, but they have generally only been available to the ultra-wealthy and large funds like university endowments.

Over the last few years however, we have begun to see a “democratization" of alternative investments, which are becoming more accessible, and more sought after by retail investors.

There are a few good reasons to consider these ‘alts.’ They offer several advantages over traditional investments, but they also come with unique complexity and risks.

What we're actually talking about when we say "alternatives"

The term alternative investments refers to just about any investment that isn’t a publicly listed security, or “cash-like” (ie. savings accounts and deposits.)

Broadly, we can divide alternatives into two categories; collectibles and investment vehicles.

Collectables (that might make you money)

These are the investments that are also fun: fractional ownership in a Picasso , shares of a vintage wine collection, stakes in rare whiskey barrels. They're tangible, they're cool, and far less sensitive to economic conditions and inflation than traditional assets. That's the beauty of these assets: they offer genuine diversification because they march to their own drum beat. Thanks to fractional platforms, you can now own a slice of a Monet for the price of a decent vacation.

These investments do add an extra level of diversification to a portfolio. But let’s be honest, while they can increase in value, they aren’t really designed to compound wealth.

Alt funds (with compounding potential)

This is where the heavy lifting happens. We're talking about

• Private equity: buying entire companies or shares of private companies
• Venture capital: backing high risk/high return start-ups
• Private credit: becoming the bank for mid-sized businesses
• Hedge funds: sophisticated and exotic investment strategies
• Unlisted real estate : from commercial to residential real estate projects
• Infrastructure: owning toll roads, data centers, and utilities
• Timberland: long term, renewable resources to supply the construction industry.

These investments can be held directly (e.g. real estate and shares in private companies), or via unlisted funds (e.g. private equity and hedge funds) or listed funds (e.g. infrastructure partnerships).

How alternative assets differ from traditional assets

📈 Valuation and returns

If you invest in a publicly listed stock your returns come from a combination of earnings growth and market sentiment. At any given time the valuation of any given company can be affected by sentiment within the sector as well as the broader market.

With alternative investments, returns are more closely tied to the actual profitability of underlying companies or the manager’s skill.

In the case of private equity, venture capital, real estate and infrastructure funds, fund managers create value via "operational alpha." They roll up their sleeves, fire underperforming CEOs, streamline operations, and sometimes completely reinvent business models.

🧑‍💼 Good fund managers can add a lot more value

One of the consequences of the way value is created is that returns vary widely from one fund to the next.

If you invest in a traditional fund, the returns will probably be quite similar to other funds in the same category. Even actively managed funds tend to track market indexes. The returns for alternative investment funds vary widely, with top managers adding significant value.

The chart below plots average 10-year returns to Q1 2024. Median returns for real-estate, private equity and venture capital were quite close to large cap equity returns. But, top quartile funds were 5-10% higher, while bottom quartile funds were 5-10% lower.

💸 Liquidity

Perhaps the most widely cited difference between traditional and alternative assets is liquidity. Alternative assets are typically far less liquid than publicly traded stocks and bonds which can be bought and sold at the click of a button.

This can be both a pro and con. The fact that you can’t sell an asset quickly with minimal cost or market impact is certainly a disadvantage if you need access to that capital. But this is actually a trade-off with several advantages:

• Firstly, illiquid assets aren’t marked-to-market each day. This reduces overall portfolio volatility, though it may not reduce risk.
• Secondly, the lack of liquidity makes it more difficult to “panic-sell” when the going gets tough.
• And finally, the ‘illiquidity premium ’ is a defining characteristic of alternatives. Investors can expect to earn more precisely because their capital is tied up for longer periods.

The great democratization of alternatives

Alternatives have been getting more attention (and inflows) lately, and there are a few good reasons for this:

• The private unicorn paradox: Private companies, and particularly the most successful ones, are waiting longer before going public . Current examples are Space-X and OpenAI, but others like Uber and Airbnb also went public when they were already worth 10s of billions. PE and VC funds have attracted enough capital to keep these companies private until they are years into their growth phase. This is creating demand for funds that invest in private companies, even when the vehicle is far from ideal .
• 🚧 Regulatory changes : In the US, regulators are making non-traditional investments accessible to a wider universe of investors. This is happening in several ways:
  • Retirement plans like 401(k)s will be able to include alternative assets.
  • The definition of accredited investors will be broadened.
  • Investments in certain types of private companies can be deducted from taxable income.

Private Credit and Infrastructure are displacing bonds in portfolios

Bond yields aren’t as close to zero as they were a few years ago. But inflation is still around, making real yields hard to come by. On top of that, bonds don’t offer much protection against future inflation.

Private credit has become the new yield destination, stepping in where traditional banks are cutting back on lending. Institutions are also becoming more comfortable with direct lending.

Infrastructure investment has become a growth industry as capex outpaces asset depreciation for the first time in 100 years . This is being driven by investments in data centers, the utilities needed to power them, and the electrification of the economy. In some ways infrastructure is becoming the "boring" stabilizer in portfolios. This asset class has the added advantage of being less vulnerable to inflation as data centers and power utilities can raise prices.

✨ The result? A massive increase in flows to alternative assets.

A few examples…

Listed companies within the alternatives space fall within a few categories:

💸 Private Equity (PE)

Within PE, some of the best options are to invest in the management businesses, rather than the underlying portfolios.

• Blackstone (BX) : The world’s largest alternative asset manager. While famous for Private Equity, they are also dominant in Real Estate and Credit.
• KKR & Co (KKR) : A pioneer of the leveraged buyout model.
• Apollo Global Management (APO) : Known for being value-oriented and having a massive private credit / insurance arm (Athene).

Listed PE funds are fairly rare in the US market, but more common elsewhere:

• 3i Group (LSE: III) : A FTSE 100 company that invests its own capital directly into private equity and infrastructure.
• HgCapital Trust (LSE: HGT): Gives you exposure to the unquoted software and service companies managed by Hg, a leading tech investor in Europe.
• SuRo Capital (US: SSSS) : A (small) US listed fund that invests in late-stage venture capital and private equity.

💰 Private credit & direct lending

These funds lend money to companies that cannot or prefer not to use traditional bank loans. In the US, these are often structured as BDCs (Business Development Companies), which are required to pay out 90% of taxable income as dividends.

• Ares Capital Corp (ARCC): One of the largest BDCs in the US. They lend primarily to middle-market companies.
• Blue Owl Capital (OBDC): A major player in the direct lending space, focusing on lending to private equity-backed companies.

🏗️ Infrastructure & real assets

These companies own physical assets like toll roads, pipelines, data centers, and wind farms.

• Brookfield Infrastructure Partners (BIP): A massive global owner of critical infrastructure (utilities, transport, data, midstream energy).
• HICL Infrastructure (LSE: HICL): A classic "yieldco" that invests in core infrastructure projects (like schools and hospitals) often with government-backed revenue streams.

🔋 Renewable energy

Specific funds dedicated to the energy transition, often structured to pay steady dividends from power generation.

• The Renewables Infrastructure Group (LSE: TRIG) : Invests in wind and solar farms across the UK and Europe.
• Brookfield Renewable Partners (TSX: BEP) : One of the largest publicly traded platforms for renewable power and decarbonization solutions.

🤖 AI infrastructure

• Equinix (EQIX): Owns highly connected data centers in major cities where networks meet.

• Digital Realty (DLR) : Build massive campuses and lease huge chunks of power to hyperscalers like AWS and Azure.

• DigitalBridge (DBRG): Unlike the REITs that just collect rent, DigitalBridge is an asset manager (similar to Blackstone) that actively buys, fixes, and sells digital infrastructure companies. They invest in data centers, fiber optics, and cell towers.

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Looking for more companies in the space?

• A good place to start is by looking for competitors on any company report.
• You can also search by keywords within the stock screener. Try terms like “infrastructure”, “renewables” or “private equity.”

💡 The Insight: Alternative investments require an alternative approach

When demand for any type of investment rises, the financial industry is usually quick to satisfy that demand with new products. Some make sense, while others might be a little like trying to force a square peg into a round hole.

As an example, “evergreen funds” attempt to address the liquidity challenges of illiquid assets. To do this, they hold extra cash reserves, which can act as a drag on performance.

"Liquid alternatives" ETFs try to replicate hedge fund strategies like market-neutral or long-short equity. The catch is that regulatory constraints sometimes prevent them from using the full toolkit that real hedge funds employ.

Before rushing into these funds here are few things to keep in mind:

• ☑️ Due diligence: Ask yourself the following questions

  • Is this manager a business builder or a financial engineer? You want the former. Anyone can buy a company and load it with debt to juice returns. You want managers who actually improve operations.

• How are incentives structured? Look for "hurdle rates," or thresholds the manager must clear before they get performance bonuses. You should get your preferred return (typically 6-8%) before they get rich.

• What's the liquidity structure? Evergreen funds offer some liquidity, at a cost. Drawdown funds lock you up for a decade. Match this to your personal cash flow needs, not your investment timeline wishes.

• 🔎 Analysis: Make sure you know whether an investment is essentially a fund, or a company with earnings and cash flows.

  • If it’s a fund, the market cap or valuation represents the value of underlying investments. If that’s the case, “earnings” are really just mark-to-market profits and losses, and the normal metrics might not be very useful.

• If it’s more like a traditional company, it will own assets that generate revenue, earnings, cash flows and possibly dividends. Make sure you know whether these are recurring, or likely to be “lumpy.”

• Some alternative funds are “closed-end,” which means the share count is fixed, so the price is determined by supply and demand, rather than the value of the holdings.

• Remember, average managers are unlikely to generate impressive returns.

• 🚶 If it doesn’t make sense, walk away: You may be keen to invest in a particular type of alternative asset. The reality is that there might not be a sensible way to do that just yet. If funds are there to satisfy demand rather than to generate returns, they probably aren’t investable.

Key Events Next Week

Tuesday

• 🇺🇸 US Retail Sales MoM
  • 📉 Forecast: 0.4%, Previous: 0.6%
  • ➡️ Why it matters: Slower spending signals consumer fatigue, supporting the case for further Federal Reserve interest rate cuts.

Wednesday

• 🇺🇸 US Unemployment Rate

  • 📈 Forecast: 4.5%, Previous: 4.4%
  • ➡️ Why it matters: A rising jobless rate indicates labor market softening, increasing pressure on the Fed to prioritize growth.

• 🇺🇸 US Nonfarm Payrolls

  • 📉 Forecast: 40.0k, Previous: 50.0k
  • ➡️ Why it matters: NFPs have been a key area of focus recently.

• 🇺🇸 US Inflation Rate YoY

  • 📉 Forecast: 2.4%, Previous: 2.7%
  • ➡️ Why it matters: Significant cooling brings the Fed closer to its target, cementing expectations for continued monetary easing.

Thursday

• 🇬🇧 GB GDP MoM

  • 📉 Forecast: 0.1%, Previous: 0.3%
  • ➡️ Why it matters: Slow growth gives the Bank of England more room to lower rates.

• 🇺🇸 US Existing Home Sales

  • 📉 Forecast: 4.2M, Previous: 4.35M
  • ➡️ Why it matters: Declining sales reflect ongoing affordability challenges, acting as a continued drag on the broader economy.

Earnings season continues with large caps in most sectors reporting 4th quarter earnings:

• Apollo Global Management
• AstraZeneca
• Coca-Cola
• Cisco Systems
• McDonald's
• Shopify
• Applied Materials
• Arista Networks
• Enbridge

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.