This article explores how alternative assets are transitioning from niche investments to essential components of diversified portfolios. In the next 12 months, driven by economic pressures, younger investors' risk appetite, and strategic actions by institutional fund managers, we expect the rapid growth of assets like private equity, cryptocurrencies, and NFTs across developed and developing markets.

Have you ever wondered why investors increasingly look beyond traditional stocks and bonds? With global assets under management (AuM) expected to reach US$145 trillion by 2025 and alternative investments representing US$21.1 trillion of that total, as Maveric's Latest Wealth Management Report - Redefining the Financial Advisor states, it's clear that a significant shift is underway. As traditional portfolios struggle to keep up with inflation and market volatility, alternative assets are emerging as a crucial part of the investment landscape, offering risk mitigation and higher returns. But what's driving this surge, and where are the opportunities?

The world of finance is undergoing a profound transformation, with alternative investments gaining momentum among diverse investors. Traditionally, in the domain of high-net-worth individuals and institutional investors, these assets are now finding favor across generations and geographies. Understanding what drives the growth of these assets, which segments are expanding the fastest, and where this growth is most pronounced can provide valuable insights for investors and financial advisors alike.

Unpacking the surge

1. Economic crosswinds: The catalyst
   Economic Factors Driving Investment are pushing retail and institutional investors towards assets that promise higher returns—even if they come with more significant risks. With global economies grappling with inflation, rising interest rates, and market volatility, many investors seek to diversify away from traditional 60/40 equity-bond portfolios. Instead, they are turning to assets like private equity, cryptocurrencies, and real estate that offer better yields and a hedge against inflation.
    
2. Next-gen investors: Tech and risk in action
   Millennials and Gen Z investors, noted for their tech-savviness and appetite for risk, are increasingly seeking to diversify their portfolios with alternative assets. A Forbes survey found that over 70% of millennials allocated a portion of their portfolio to alternative investments. Notably, 66% of millennials and 70% of Gen Z investors increased their allocations to alternative assets in 2023, as Maveric's Latest Wealth Management Report states.
   
   Young investors are also more comfortable leveraging technology to manage their investments, from using robo-advisors for financial planning to engaging in online platforms facilitating access to alternative assets. This tech-first approach has democratised investment opportunities, setting the stage for institutional players to make their moves.
    
3. The institutional playbook: Diversifying boldly
   Major institutional investors, including pension and hedge funds, have increased their allocations to alternative assets over the last decade. Fund managers are leveraging technology, including blockchain and tokenisation, to fractionalise assets, making them accessible to more investors. Maveric's Latest Wealth Management Report states that global AuM is expected to reach US$145.4 trillion by 2025, with alternative investments representing US$21.1 trillion. Moving forward, it is essential to understand which segments within alternative assets are growing the fastest and why they are drawing significant attention.

Hot picks: Fastest-growing segments

• Private equity: A power player
  Private equity remains one of the most attractive segments, with its potential to deliver substantial returns compared to public markets. Investors are drawn to opportunities in venture capital and leveraged buyouts, which have seen a rise in liquidity through secondary markets.
   
• Cryptocurrencies: Breaking new ground
  Cryptocurrencies are among the fastest-growing alternative asset classes, with milestones like the approval of spot Bitcoin ETFs in the United States and growing institutional adoption. Despite their volatility, cryptocurrencies like Bitcoin and Ethereum offer high returns. As of February 2024, Bitcoin accounted for 48.6% of the total value of the cryptocurrency market.

Art & NFTs: Where finance meets culture
The rise of NFT investments is particularly notable, with these digital assets becoming popular among younger investors looking for culturally significant investments. According to a report by NonFungible.com, the NFT market reached over US$2 billion in sales in Q1 2024,

The growth of NFTs has shifted how we think about ownership and value. Digital assets blur the lines between finance and culture, allowing investors to participate in a market that is as much about artistic appreciation as it is about returns.

• Real estate: The solid bet
  Real estate offers tangible value and acts as a hedge against inflation. Fractional real estate ownership through tokenisation platforms allows smaller investors to participate in previously inaccessible markets.

  Tokenisation is transformative for real estate, enabling greater liquidity and flexibility. Investors can now buy and sell fractional shares of properties on digital platforms, reducing barriers to entry. As we look at the global adoption of alternative assets, regional dynamics offer a fascinating view of how developed and developing markets contribute to this growth.

Global growth pulse

• Developed markets: Alternatives go mainstream
  The growth of alternative assets is a global phenomenon, but regional differences exist. In developed markets like the United States and Europe, alternative assets are becoming mainstream as regulatory environments evolve. The approval of Bitcoin ETFs by the U.S. Securities and Exchange Commission (SEC) and the implementation of MiCA in Europe have bolstered confidence among investors.

  Robust regulatory frameworks in developed markets provide transparency and security, attracting more conservative investors. This institutional-grade infrastructure and growing public awareness have accelerated the adoption of assets like private equity, real estate, and cryptocurrencies. Meanwhile, developing markets are also experiencing growth, driven by rising incomes and evolving financial infrastructures.

• Developing markets: Asia rising
  In developing regions, particularly in Asia, the growth of alternative assets has been impressive. Countries like China and India are experiencing increased demand for alternative investments. The rising disposable incomes and evolving financial landscapes have prompted private equity, real estate, and digital asset investments. Singapore, for example, has positioned itself as a hub for blockchain and cryptocurrency innovation, drawing interest from investors across the Asia-Pacific region. This surge highlights the convergence of technology, regulation, and growing investor awareness, making Asia a significant player in the future of alternative investments.

Conclusion: Embracing the future of investment
According to PwC, global AuM is expected to reach US$145 trillion by 2025, with alternative investments representing 15% of all AuM. This projection indicates the broad-based growth that alternative assets are experiencing globally—from established financial hubs to burgeoning economies.

Driven by economic factors, the preferences of younger investors, and fund managers' strategic actions, alternative investments are becoming essential components of a well-diversified portfolio.

Financial advisors and investors must closely monitor these trends, leveraging expertise and technology to make informed decisions. For those who embrace these changes, the opportunities within alternative assets are substantial and growing.