Pension funds' allocations to risky, alternative investments increased by 25% between 2001 and 2021

Pension plans investing over 60% in stocks had the highest real returns in 2024

In order to ensure that retirees received all the retirement funds a company or other institution may have promised them, pensions were often limited to investing in run-of-the-mill assets like government securities, investment-grade bonds, and blue-chip stocks. But as market conditions have evolved, pensions are increasingly being invested in a wider range of assets, including alternative investments.

Some institutional investors are growing wary of private equity, as certain investments underperform traditional market indices

Private equity often attracts investors who can afford to tie up capital for long periods of time in exchange for higher returns than traditional investments. For many years, private equity at least tracked with the S&P 500 in terms of returns to investors, but in 2024 and 2025, it underperformed and posted declining returns.

Nearly half of billionaires planned to increase exposure to direct private equity investments in 2026.

Some multibillion-dollar pension funds depend on hedge funds

Pensions are responsible for safeguarding the retirement plans of many corporate and government employees alike. Pensions differ from 401(k) plans and sometimes rely on alternative assets, like hedge funds, to insulate their portfolios of billions of dollars from volatility in financial markets. Read the case top pension advisor Cambridge Associates makes for hedge funds.

The alternative investments industry is expected to grow significantly in the coming years

More specifically, as of 2024, the alternative investments industry was expected to grow to more than $24T in assets in 2028—up from roughly $15T in 2022.

People often invest in alternative investments to diversify their portfolios

Because alternatives often have little correlation with traditional investments like stocks and bonds, adding them to a traditional portfolio can reduce its overall risk exposure.

Alternative investments have become more popular since the 2008 financial crisis

When the traditional markets crashed during the 2008 financial crisis, many people saw the value of their traditional investments plummet and began to look into alternatives as a result.

In 2024, US private equity posted an 8.1% return

Tracked by Cambridge Associates, 2024 performance saw limited partner distributions overtake contributions for the first time in years. Cambridge Associates, a leader in the space, typically uses a 2.0x+ MOIC (Multiple on Invested Capital) as a benchmark for top-quartile PE fund success.

The prevalence of 401(k) plans and IRAs over pensions shifted investment risk from employers to employees.

US pension plan adoption has declined from 1975 to 2021

Pension plans are a form of guaranteed retirement plan for long-time workers, and they were a major part of industries in the mid-20th century. With the rise of the 401(k) and similar tax-advantaged, defined-contribution accounts, these so-called defined-benefit plans have declined in use by employers. Compare US adoption of both kinds in this table.

Cheap debt and relatively minimal regulation have fueled private equity's expansion in recent years.

Private equity is viewed as an alternative investment

These different types of private equity include venture capital, growth equity, and buyouts.

71% of equity investments in Q1 2025 went to AI companies

That's up from just 14% in 2020, according to JPMorgan, which recently conducted an analysis of venture capital investment trends in the US.

Private equity's expansion into healthcare has been criticized for raising patient medical costs

Between 2000 and 2018, PE's total investment in healthcare ballooned from $5B to $100B. While healthcare systems originally began consolidating as a solution to navigating complex regulations (and to make working with insurance companies easier), research suggests that private equity has both increased patient costs and decreased the quality of care in hospitals and doctors' offices.

When compared to stocks and bonds, alternative investments are often less regulated

Alternative investments are also often less liquid than traditional investments; they carry unique risk, return, and tax considerations.

Private credit and private equity are both alternative assets

Like private equity fund managers, private credit managers typically raise funds directly from investors, lending to corporations. The borrowers can benefit from the lack of middlemen and resulting efficiency, and the lenders often yield comparatively higher returns.

Family offices have been increasing their allocations to private credit

Private firms that manage family fortunes have been investing more in alternatives like venture capital and real estate, impacting the wider financial world.

Alternative investments can be sorted into seven major categories, according to some experts

These categories include real estate, private equity, private debt, hedge funds, collectibles, and more.

The majority of capital in private equity funds is provided by institutional investors

The individuals who invest this initial capital are called the firm's limited partners. Private equity firm LPs include sovereign wealth funds, university endowments, high-net-worth individuals, and more.

Explore an alternative investments timeline

From what’s known as the first leveraged buyout, when JPMorgan acquired the Carnegie Steel Company, to the creation of the first-ever hedge fund, alternative investments have a long history.

Mutual funds in seven broad categories averaged a 13.1% annual return in 2023.

401(k) plans and pensions differ in who has control over the investments

With pension plans, a company contributes to an investment fund from which it distributes regular payments to a retired worker until their death. A 401(k) gives the worker control over contributions in a tax-advantaged account.

The Yale model of investment allocation, explained

College endowment managers long held to the traditional allocation of 60% domestic stocks and 40% bonds. But Yale’s David Swensen developed a new approach: deprioritizing low-risk fixed income and liquid assets in favor of alternative investments to leverage endowments' long-term investment horizons and capture the “liquidity premium.”

Alternative investments can include everything from cryptocurrency to fine art

The financial assets typically fall outside the scope of traditional investments like stocks and bonds, and they’re often intended to diversify investor portfolios.

The first private equity fund was launched in 1960

At the time, the industry—and the public's understanding of it—was rather limited, and few private equity firms existed until the 1980s. The first leveraged buyout is thought to have taken place in 1955.

Explore the differences between private equity, venture capital, and hedge funds

Private equity firms focus on buying and improving private companies with the intent to sell them for profit or take them public. Venture capital is technically a form of private equity in which investors focus on startups and generally don't seek majority control of the company. Hedge funds are pooled investments for sophisticated investors that pursue a wide range of often complex strategies.

Investing in private equity is typically reserved for 'accredited investors'

Limiting PE to accredited investors helps protect less experienced investors from large and risky investments. Accredited investors must meet requirements set by the Securities and Exchange Commission—they're typically required to have a net worth exceeding $1M, for instance. (Some users may experience a paywall.)

Roughly 10% of US apartments were owned by private equity firms as of 2025.

Explore a guide to investing in alternatives

Investors often use alternative investments, from collectibles to real estate, as a way to diversify their portfolios in case of market volatility. Getting started investing in these alternatives differs depending on the investment.

Visualize the world's top 50 private equity firms in 2025 by capital raised.

Not all alternative investments are easy to invest in

For instance, some alternative investments are only available to accredited investors or high-net-worth individuals. Others have relatively high fees compared to traditional investments.

Private equity firms can be 'powerful partners' or 'formidable competitors'

Under the best circumstances, PE firms can increase a company's value using strategies that might not be suitable for public companies facing pressure for immediate shareholder returns. But PE firms are often portrayed negatively due to the aggressive strategies they sometimes use to cut inefficiencies. As PE has grown, many firms have changed their strategies, shifting away from aggressive scaling to more integrated acquisitions.

The financial crisis in 2008 had a major impact on many 401(k) plans

Amid the 2008 financial crisis, stocks and bonds cratered as the broader market floundered due to the subprime mortgage crisis. Investors with so-called "target-date" funds—which shift allocations based on the maturation of a fund—shared in the slump, with some funds declining by 20% or more just a year or two away from maturation.

Private equity companies are selling off more acquisitions—but at much lower prices

In 2025, private equity exits were up by 5.4%, but the total value of those deals was down by 21.2% year-over-year. An exit occurs when a private equity firm either sells an acquired company or takes that company public.

About 30% of financial advisors opted for fixed and indexed annuities in 2023

An infographic that shows the most common types of investments used by financial advisors with their clients in 2023 also found that nine in 10 advisors used ETFs, and three-quarters invested in cash and cash equivalents.

Private equity IRR is the internal rate of return on a PE investment or fund

It's typically expressed as an annualized percentage that incorporates both the size and timing of cash flows between investors and the fund. It's the discount rate that makes the net present value of all cash flows equal zero. Many private equity funds target a net IRR in the mid‑teens to low‑20s percent range, with an 8% "hurdle" or preferred return as a minimum before carried interest or "carry" is paid.

Apollo Global Management and Blackstone are among the world's top 20 private credit fund managers

While Blackstone is the world's largest alternative asset manager, Apollo Global Management is a large private equity firm. Apollo had $480B in private credit assets under management as of January 2025.

The private credit industry—which offers nonbank loans directly to businesses, particularly privately held midmarket companies—grew from a $250B asset class in 2010 to around $1.5T in early 2024.

ETFs are rising in popularity

While less than half of retail investors hold ETFs in their portfolio, this figure is up dramatically in recent years, and experts forecast continued adoption as more options hit the market and total ETF assets under management continue to grow.

Between 2016 and 2023, PE spent more than $200B buying British companies

Between the COVID-19 pandemic and the United Kingdom's official departure from the European Union, the UK's economy struggled to recover. This economic strife led to British companies receiving steadily lower valuations than American companies, prompting a huge increase in PE investment. However, interest rates began increasing in 2022, putting pressure on the numerous leveraged buyout deals that took place between 2020 and 2021.

Only half of American workers have retirement accounts, like 401(k) plans, through their current jobs.

Alternative investments carry unique tax implications

The specifics depend on the type of alternative asset, as well as how long you hold it for, and your income.

Retail investors cannot directly invest in private credit funds—but other financial vehicles can offer exposure to the industry

For example, as some US regulations have loosened in recent years, retail investors have begun to get exposure to the private credit market via ETFs that invest in publicly traded financial vehicles with private credit exposure, such as BDCs.

Some semi-liquid private credit funds saw a surge in investor redemptions in early 2026

This raised red flags about the state of the private credit market at large. However, experts have cautioned that the idea that private credit is on the verge of collapse is overstated.

90 percent of active managers of large public funds underperform

High fees tend to eat away at whatever edge professional managers accrue, resulting in most such funds performing worse than their underlying benchmark indexes like the S&P 500.

Borrowers were increasingly defaulting on private credit loans as of early 2026

Risks in private credit investing include the industry's lack of transparency and the ability of businesses to borrow more than a bank might allow against their debt. Some borrowers in early 2026, for instance, likely did not expect interest rates to be so high for so long, which could be contributing to an uptick in defaults.

BlackRock says investor demand and improvements in underlying fund technology have supercharged ETF availability in 2025

Investors are likely most familiar with ETFs that invest in an index or other grouping of stocks. However, BlackRock breaks down a wide variety of options, including commodity ETFs, currency ETFs, and bond ETFs.

Asia-Pacific's share of global venture capital investment has jumped from 3% to 28% in 20 years

China has driven much of that growth due to its manufacturing power and tech sector. This graphic shows how the share of total venture capital deal value changed around the world between 1997 and 2023.

The 60/40 method says to allocate 60% of your portfolio to stocks, and 40% to bonds

The 60/40 method used to be the golden rule when planning for retirement, as stocks are more lucrative and bonds are more reliable. However, it isn’t necessarily the go-to recommendation anymore.

Contrary to popular belief, random investments can outperform managed funds.