What are alternative investments?
Stocks, bonds, and cash have long anchored defined contribution (DC) portfolios, but that foundation is expanding. As sponsors and financial professionals seek greater diversification and improved outcomes, alternative investments are moving into the spotlight. By 2035, one in five plan sponsors expects to include alternatives in their retirement plan.¹ Because this may be new territory for retirement professionals, we’ll share what alternatives are and how they compare to traditional assets.
What’s considered an alternative investment?
Alternative investments are financial assets that fall outside traditional categories, such as stocks, bonds, and cash. But just like traditional assets, you can invest in different investment types and strategies with varying risk and return potential.
What are some types of alternative investments?
Private asset alternatives
Private asset alternatives are investments in companies, projects, or properties that don’t trade on public markets. So, instead of buying shares on the open market, qualified investors enter into negotiations directly with sellers, also known as the private market. Generally, private market transactions require a long-term commitment from the buyer, with deposit and redemption requirements that make their investment harder to trade. Investors are offered an illiquidity premium, which is the extra return they can expect for holding assets that can’t be easily or quickly sold.
Private asset alternatives include private equity, where investors buy ownership in private companies and may share in their future profits, and private credit, where investors lend money directly to companies in return for interest payments and the return of their initial investment (principal) at a specific date (maturity).
What are some examples of private assets?
| Private equity examples | Investment focus |
| Growth equity | Invests in well-established companies looking for capital to expand their business; typically less risky than startups but still offers strong growth potential |
| Leveraged buyout | Acquires controlling stakes in mature, stable businesses; often uses a mix of equity and borrowed money (leverage) to purchase a business and then works on improving operations, increasing profitability, and eventually selling the business for a gain |
| Venture capital | Invests in early-stage, high-growth companies that may carry more risk, but offer higher return potential than mature companies |
| Private credit examples | Investment focus |
| Asset-based lending | Loans backed by collateral, such as inventory, equipment, or receivables |
| Direct lending | Loans made directly to small or midsize businesses that may not be able to borrow from traditional banks |
| Venture debt | Loans made to early-stage, high-growth companies that are backed by venture capital |
What are some examples of real assets?
| Real asset type | Examples |
| Collectibles | Art, antiques, coins, stamps, and memorabilia |
| Commodities | Gold and crude oil |
| Infrastructure | Roads, bridges, power lines, corn fields, and cellular towers |
| Real estate | Commercial buildings, apartments, and office space |
| Timber and agriculture | Farmland and forestry |
How do alternative investments compare to traditional assets?
| Category | Traditional assets | Alternative assets |
| Accessibility | Widely available to individual investors and DC plans | Widely available to qualified investors and institutions, including defined benefit pension plans, and limited access to DC plans |
| Market correlation | Generally, move in the same direction as the broader market | Generally, don’t move in the same direction as the broader market |
| Diversification benefits | Generally, a mix of stocks, bonds, and cash is used to help offset losses from any single asset class | When added with a mix of traditional assets, alternatives can help boost diversification, which may lead to higher potential returns and lower volatility over time |
| Return drivers | Varies. Generally, price appreciation, dividends, interest income, and repayment of principal | Varies. Generally, income from rent or interest, capital appreciation, and illiquidity premiums |
| Investment horizon | Short- to long-term | Medium- to long-term |
What’s next for alternatives?
When integrated into a traditional retirement portfolio, alternatives can help deliver greater diversification, higher return potential, inflation protection, and smoother volatility over time. Still, access to alternative investments in DC plans remains limited. New regulations, focused on providing clearer guidance and frameworks, may help accelerate their adoption by plan sponsors and financial professionals.
1 “Cerulli: Up to One-Fifth of DC Plans Might Invest in Private Markets by 2035,” Wealth Management, 1/8/26.
You should carefully consider the objectives, risks, charges, and expenses before investing. The prospectus contains this and other important information about the investment option and investment company. Please read the prospectus carefully before you invest or send money. Prospectus may only be available in English.
There is no guarantee that any investment strategy will achieve its objectives.
Liquid alternatives: Alternative investing involves substantial risk and there is an opportunity for significant losses. The products may not be suitable for all investors. Compared with a traditional mutual fund, an alternative fund typically holds more nontraditional investments and employs more complex trading strategies. Investors considering alternative mutual funds should be aware of their unique characteristics and risks. Alternative investments may have limited performance information, low liquidity, and unproven strategies with unknown risks.
Illiquid alternatives: Alternative investments by their nature involve a substantial degree of risk, including the risk of total loss of an investor's capital. Further, alternative investments are subject to less regulation than other types of pooled investment vehicles, may be illiquid, and cannot assume that investments in the asset classes identified will be profitable or that decisions we make in the future will be profitable. Alternative investments may also involve significant use of leverage, making them substantially riskier than other investments.
Important disclosures
Important disclosures
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice. Please consult your own independent advisor as to any investment, tax, or legal statements made.
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