Are Alternative Investments Poised for a 2025 Breakthrough?
December 28, 2024
0 3 minutes read
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Gone are the days when alternative investments were exclusive to the wealthy elite.
Once shrouded in complexity and high barriers to entry, these lucrative opportunities are now opening up like never before.
As we step into 2025, a revolution in access is underway—thanks to fractional ownership and innovative platforms that are breaking down the doors to investment possibilities.
Atish Davda, co-founder and CEO of a leading pre-IPO investment platform, points out the seismic shift occurring in the wealth management sector.
“The conversation has evolved. It’s no longer about ‘if’ clients should consider alternatives, but rather ‘how and which,'” he asserts. “As we forge ahead, expect portfolio allocations to increasingly embrace alternatives, raising the crucial question: ‘Which alternatives?'”
Davda hints at a new sophistication in investment approaches.
“Investors will begin to distinguish between speculative assets, like wine and collectibles, and investments with tangible value, such as pre-IPO and private credit,” he explains.
Patrick “Pat” Kennedy, co-founder and founding partner of a prominent investment firm in Connecticut, shares insights from his extensive background in alternative investments.
As we enter 2025, he emphasizes the importance of monitoring deregulation, the Federal Reserve’s interest rate policies, and the increasing momentum in mergers and acquisitions.
“These trends are poised to favor alternative investments, particularly in private equity and hedge funds,” he notes. “Private equity is emerging from a period of dormancy, with activity expected to surge in the coming months.”
Brian Spinelli, co-investment officer at a respected investment firm in California, highlights the ongoing trend of tailor-made alternative investment products for individual investors. He expects interest rates to remain a focal point in 2025.
“Investors seeking bond-like alternatives will likely continue their pursuit of higher yields, unless 2025 turns into a year of risk avoidance,” he adds. “If public U.S. equities maintain strong performance, it could deter investors from diversifying into alternatives.”
Christopher Berry, a financial planner from Michigan, anticipates a rise in alternative investments as investors seek hedges against market volatility.
“Interest rate shifts and continued innovation in accessing these investments will be the driving forces,” he asserts.
Alternative investments are becoming increasingly available to a wider range of investors, according to a managing partner of a wealth advisory firm in California. Many alternatives traditionally required steep minimum investments of $5 million.
“With the right Registered Investment Advisor (RIA), that barrier can drop to as low as $250,000,” he explains. “However, these investments can be complex and lengthy to navigate.”
He adds that alternative fund managers are diversifying their offerings, using structures like closed-end funds and interval mutual funds.
“With interval mutual funds, the investment process is streamlined, and minimums can start at just $1,000,” he notes, also mentioning the convenience of receiving 1099s instead of K-1s.
Investment managers are eager to widen their investor base, aiming to simplify the investment journey and lower minimum thresholds for broader participation in this asset class.
A recent example of this is when NFL owners voted to permit private equity funds to acquire stakes in teams, allowing up to 10% ownership.
Kennedy mentions that his firm is among the few with access to these unique opportunities.
“Investing in professional sports is often seen as a vanity move, but owning equity in an NFL team is backed by solid fundamentals,” he argues.
Spinelli points out that fractional ownership is a game changer, allowing individual investors to tap into high-value assets that were once out of reach.
“This diversification comes at lower investment minimums, but investors must be wary of liquidity constraints and fees,” he cautions.
Berry adds that the advent of fractional shares is dismantling traditional barriers, enabling more investors to participate in real estate and private equity without hefty capital requirements.
“With this newfound accessibility, we can expect alternatives to become integral parts of mainstream portfolios,” he concludes. “However, educating clients about the complexities and risks is paramount.”
But, Ekoniak warns, caution is crucial with alternative investments.
“Just because something is labeled as an alternative doesn’t guarantee its quality,” he advises. “With less public information available, thorough research and due diligence are essential before diving in.”
