If you have ever looked at your portfolio and wondered whether there is more you could be doing, you are not alone. For many high-net-worth individuals and families, the traditional mix of shares, bonds, and cash no longer feels sufficient on its own. Interest rates shift, equity markets swing, and inflation quietly erodes purchasing power. Against this backdrop, a growing number of sophisticated investors are turning to what the industry calls alternative investments.
But what exactly are they, who are they suited to, and what should you consider before allocating capital to them? This article covers the fundamentals in plain language, so you can have a more informed conversation with your Barker Wealth adviser.
What Are Alternative Investments?
Alternative investments are any assets that sit outside the conventional categories of listed equities, government and corporate bonds, and cash deposits. The term covers a wide and varied landscape, from private equity and infrastructure through to hedge funds, private credit, and real assets such as commercial property and commodities.
What unites them is not their structure or return profile, but what they are not: they are not publicly traded on an exchange in the way that ASX-listed shares or government bonds are. This distinction has meaningful implications for how they behave, how they are valued, and crucially, how they fit within a portfolio.
Some of the most common types include:
Private equity involves investing directly in unlisted companies, either through a fund structure or directly. Investors provide capital in exchange for an ownership stake, with the expectation that the company will grow in value before being sold or listed publicly. Private equity has historically delivered strong long-term returns, though it requires patient capital and carries meaningful risk.
Private credit refers to direct lending to businesses outside the traditional banking system. As banks have pulled back from certain segments of the lending market over the past decade, private credit managers have stepped in, often offering attractive yields with structured protections for investors. It has become one of the fastest-growing segments of the alternatives market globally.
Real assets include physical investments such as commercial and residential property, infrastructure (think toll roads, airports, and utilities), timberland, and commodities. These assets often have tangible income streams and have historically offered some protection against inflation, since their value tends to rise alongside prices.
Hedge funds are actively managed investment vehicles that employ a broad range of strategies, including long/short equity, global macro, and event-driven approaches. They aim to generate returns regardless of market direction, though their complexity and fee structures require careful scrutiny.
Venture capital is a subset of private equity focused on early-stage and growth companies. Returns can be exceptional when a portfolio company succeeds, but the failure rate is high and the time horizon is long. It is best suited to investors who understand and accept the asymmetric risk profile.
Why Are More Investors Considering Alternatives?
The interest in alternatives is not simply a trend. It reflects some structural shifts in how wealth is managed at the institutional level, and a growing recognition among private investors that traditional portfolios may leave certain risks unaddressed.
There are several reasons why sophisticated investors typically include alternatives as part of a diversified strategy.
Diversification beyond public markets. One of the most compelling arguments for alternatives is that many of them have a low correlation to listed share markets. When equity markets fall sharply, as they did in 2008, 2020, and during the 2022 rate cycle, certain alternative assets can hold their value or even appreciate. This does not mean alternatives are immune to loss, but their different return drivers can meaningfully reduce overall portfolio volatility.
Access to return premiums unavailable in public markets. Private equity and venture capital offer exposure to companies in their most dynamic growth phases, before they reach the public market. Investors who can tolerate illiquidity and a longer time horizon are compensated for doing so through what practitioners call the illiquidity premium, the additional return available in exchange for giving up the ability to sell quickly.
Income generation in a complex yield environment. Private credit and infrastructure assets can deliver consistent, structured income streams. In a world where government bond yields have remained volatile and term deposit rates are uncertain, these alternatives offer predictable cash flows that many investors find valuable.
Inflation protection. Real assets such as property, infrastructure, and commodities have long been used as inflation hedges. Many infrastructure contracts, for example, include CPI-linked revenue provisions, meaning the income they generate rises with inflation. For investors focused on preserving purchasing power over time, this characteristic is particularly valuable.
Portfolio construction at scale. Institutional investors such as superannuation funds, sovereign wealth funds, and endowments have allocated meaningfully to alternatives for decades. The Future Fund, for example, has historically held a substantial portion of its portfolio in alternatives. Private investors working with a specialist adviser can access many of the same structures, though minimum investment thresholds and complexity remain important considerations.
What Are the Risks?
A balanced discussion of alternatives must include an honest account of the risks involved. These are not straightforward investments, and they are not appropriate for every investor or every portfolio.
Illiquidity is perhaps the most significant consideration. Unlike ASX-listed shares, which can be sold in seconds, most alternative investments lock up capital for extended periods. Private equity funds typically have a ten-year life, with capital committed upfront and returns distributed as underlying investments are realised. Investors must be comfortable knowing their money is inaccessible for that duration.
Complexity and transparency. Alternatives are generally less transparent than listed investments. Valuations may be updated quarterly rather than in real time, and the underlying strategies can be difficult to assess without specialist knowledge. This makes the quality of the manager and the rigour of due diligence critically important.
Higher minimum investments. Many alternative investment structures are wholesale or sophisticated investor products, with minimum commitments that can range from $50,000 to several million dollars depending on the vehicle. This concentrates risk and means diversification within alternatives requires meaningful capital.
Manager risk. In private markets, the difference between a top-quartile and bottom-quartile manager is vast. Choosing the wrong private equity manager or credit manager can result in poor outcomes even in a favourable market environment. Access to high-quality managers, and the expertise to evaluate them, is a genuine differentiator in this space.
Regulatory and structural risk. Some alternative structures, particularly offshore vehicles or complex derivatives-based strategies, carry regulatory and structural risks that require careful legal and financial advice. ASIC’s Regulatory Guide 175 sets out the obligations that apply to advisers recommending these products. Investors should always ensure they fully understand the structure they are investing in and the protections available to them.
Who Are Alternatives Best Suited To?
Alternative investments are not a universal solution. They are most appropriately considered by investors who meet a number of criteria.
A long investment horizon is essential. If there is any chance you will need access to your capital within the next three to five years, committing to an illiquid alternative is unlikely to be appropriate. Alternatives work best when they form part of a long-term wealth strategy rather than serving a short-term objective.
Sufficient liquid reserves outside the alternative allocation are equally important. A well-constructed portfolio ensures that any illiquid positions are not the only source of capital available in an emergency or opportunity.
A clear understanding of risk and return expectations matters. Alternatives can deliver strong returns, but they can also result in capital loss. Investors should enter these positions with realistic expectations and a genuine understanding of what they own.
Access to specialist advice is arguably the most important factor of all. The complexity of alternatives, particularly in manager selection, structure assessment, and portfolio construction, means that working with an adviser who has deep expertise in this space is not optional. It is essential.
How Do Alternatives Fit Within a Portfolio?
There is no single correct allocation to alternatives. The right proportion depends on your total wealth, liquidity needs, income requirements, time horizon, and risk tolerance. For many private wealth clients, an allocation of between ten and thirty percent to alternatives is a reasonable starting point for discussion, though this varies considerably.
What matters most is that the allocation is deliberate and integrated into your overall financial plan. Alternatives are not a bolt-on addition. When chosen well, they are a structural component of a portfolio designed to perform across different market environments.
At Barker Wealth, our approach is to assess each client’s circumstances carefully before recommending any alternative strategy. We look at the full picture: your existing assets, your goals, your liquidity requirements, and your appetite for complexity. From there, we identify opportunities that are genuinely additive rather than simply novel.
A Note on Accessing Alternatives in Australia
In Australia, many alternative investment products are classified as wholesale or sophisticated investor products under the Corporations Act 2001. This means they are generally available only to investors who meet specific wealth or income thresholds, or who qualify as sophisticated investors under ASIC’s guidance.
This regulatory framework exists to protect retail investors from products that carry complexity and risk beyond what is appropriate for general audiences. If you are unsure whether you qualify, or what disclosures and protections apply to any specific investment, your adviser can walk you through this clearly.
ASIC’s MoneySmart website provides useful general guidance on investment risk and what questions to ask before committing capital to any product.
The Bottom Line
Alternative investments offer genuine benefits for the right investor in the right circumstances. They can enhance returns, reduce volatility, provide inflation protection, and open up asset classes that are simply not accessible through public markets. But they come with real risks, real complexity, and real requirements in terms of time horizon and liquidity.
The question is not whether alternatives are good or bad in the abstract. The question is whether they are right for your portfolio, your goals, and your circumstances. That is a conversation worth having.
If you would like to explore whether alternatives have a role in your wealth strategy, we invite you to speak with a Barker Wealth adviser at your convenience. There is no obligation, and no generic advice. Just a focused conversation about what is right for you.
This article is intended for general informational purposes only and does not constitute financial product advice, legal advice, or tax advice. The information provided is based on general principles under the Corporations Act 2001 (Cth) and may not apply to your individual circumstances. Always consult a licensed financial adviser and a qualified accountant before making investment decisions. Past performance is not a reliable indicator of future performance.