Last week, we looked at how and who in WealthTech is rushing to launch functionality around alternatives. Today, we took a step back to think about why. Why is there so much interest in an investment category with so many unknowns and so many barriers to entry?  

With the stories of significant returns and portfolio diversification coming from private markets, investors are seeking to do the same. They want access to the kinds of opportunities that have historically been limited to institutions and ultra-high-net-worth investors, and they are willing to pay extra if it means participating in potential like this. 

• Alternative AUM has more than doubled over the past decade, rising from US$7.5 trillion in 2014 to US$16.7 trillion in 2024 (Preqin).  

• Even among HNW (US$1mm-US$10mm investible assets), more than 50% of Schwab’s clients expect at least 5% of their portfolios to be allocated to alternatives (Schwab).  

The switch is mainly driven by three trends: 

Higher returns

• With the rise of the ETF came an effortless path to achieve market returns. Many investors now feel that they need access to exclusive opportunities to beat the market. 

• 72% of investors aged 21–43 believe it is no longer possible to achieve above-average returns by investing solely in traditional stocks and bonds (BofA).  

Diversification and stability

• Private markets help reduce volatility and correlation with public markets, offering a meaningful diversification benefit during market downturns (WEF).  

• With public markets increasingly concentrated (e.g. over 30% of the S&P 500’s market cap is held in 7 stocks), investors are realising their portfolios are not as diversified as they appear. 

Larger investable opportunity set 

• There are more than 17,200 private businesses in the U.S. with annual revenues greater than US$100 million, compared with fewer than 4,060 public companies of that size (Morgan Stanley). 

• With fewer IPOs and shrinking public company lists, investors turn to private markets simply to broaden exposure and access companies otherwise unreachable. 

This growing demand is forcing WealthTech providers to rethink how private markets are accessed and managed. Solution providers are responding by partnering up and innovating with new tools, platforms, and distribution models to make alternatives more accessible than ever before.

Read the original article here.