Truth About Best Alternative Investments That Banks Won’t Tell You

Best alternative investments are growing at an unprecedented pace, with global assets under management in this sector surpassing $33 trillion to date. Despite this remarkable growth, traditional banks rarely highlight these options when discussing portfolio diversification with their clients.

In fact, alternative investments have expanded significantly over the past decade, surging from around $7 trillion in 2014 to over $18 trillion in 2024, with projections estimating nearly $29 trillion by 2029. Alternative investing now represents about 15.2% of the total asset universe, however, this figure has actually decreased from its peak of 16.2% at the end of 2022.

What makes alternative assets particularly appealing in 2025 is their tendency to follow different patterns than conventional stocks and bonds. This characteristic creates powerful diversification opportunities that we’ll explore throughout this article. While fundraising for alternatives is currently at its weakest pace since 2016 (tracking below $1 trillion annually), specific segments like the Cayman Islands Stock Exchange have seen dramatic growth, becoming the preferred listing venue for 95% of all Special Purpose Acquisition Companies launched in 2024.

In this guide, we’ll uncover what banks typically don’t tell you about alternative investment strategies, explore the best alternative investments for 2025, and provide practical insights on how to access these opportunities regardless of your investor status.

What are alternative investments and why banks downplay them

Alternative investments encompass a diverse range of assets that fall outside conventional investment categories of stocks, bonds, and cash. Think of them as the rebels of the investment world, breaking the traditional mold to offer different paths to wealth creation.

Definition and scope of alternative assets

Alternative investments include private equity, hedge funds, real estate, private credit, venture capital, commodities, cryptocurrencies, art, collectibles, and more. They’ve gained significant traction in recent years, with the global alternative investments market reaching a record INR 1016.78 trillion in assets under management in 2022.

These investments typically share several key characteristics:

• Lower liquidity compared to traditional investments
• Complex regulatory structures and reporting
• Potential for higher returns with corresponding higher risk
• Low correlation with traditional markets

This last point is especially crucial as alternative assets often follow different patterns than stocks and bonds, making them powerful portfolio diversification tools.

Why traditional banks focus on conventional products

Traditional financial institutions tend to downplay alternative investments for several practical reasons. First, alternatives often require higher minimum investments – sometimes INR 1 crore or more – putting them out of reach for many retail customers.

Furthermore, banks operate within strict regulatory frameworks that favor standardized products. Alternative investments frequently have complex fee structures, valuation challenges, and limited transparency compared to regulated securities.

Banks also prioritize liquidity, whereas many alternative investments lock up capital for extended periods. For example, private equity funds typically involve commitments of several years, something banks find difficult to promote to customers accustomed to instant access.

How alternative investing challenges the status quo

Alternative investing fundamentally shifts power away from traditional gatekeepers. Previously, these opportunities were exclusively available to institutional investors and ultra-high-net-worth individuals. Today, new platforms and investment vehicles are democratizing access.

Additionally, the traditional 60/40 portfolio (stocks/bonds) has shown limitations during recent market volatility. Alternative investments provide genuine diversification benefits because they respond differently to economic conditions.

The emergence of tokenization and fractional ownership models is further disrupting conventional investing. Now, assets like commercial real estate or fine art can be divided into smaller, more accessible investments – challenging the banks’ monopoly on financial products.

As investment democratization continues, expect to see more platforms offering alternatives to mainstream audiences, regardless of what traditional banks promote.

8 best alternative investments for 2025

Looking beyond traditional investment avenues, savvy investors are turning to these eight compelling alternatives that offer unique opportunities in 2025.

1. Real estate (REITs, rental, fractional ownership)

Real estate investment trusts (REITs) allow investors to access income-producing properties without direct ownership. Unlike traditional property investments, REITs require no maintenance responsibilities while distributing at least 90% of taxable income as dividends. For those seeking more control, rental properties provide steady income with the ability to raise rents during inflation. Alternatively, fractional ownership platforms now enable investments starting as low as INR 84.38, democratizing access to premium properties that were previously unattainable.

2. Private equity (startups, growth-stage companies)

Private equity investments in early-stage ventures and growth companies offer substantial return potential. Growth-stage companies, having achieved product-market fit with consistent revenue, typically require capital for geographical expansion or new product development. Notably, smaller, sector-specialist managers with deep operational expertise are positioned to outperform larger generalists in 2025. The small and mid-market segment presents the “sweet spot” with lower entry valuations and more attractive performance compared to large-market counterparts.

3. Private credit (direct lending, mezzanine debt)

Direct lending—where non-bank creditors provide loans to businesses—represents a growing opportunity, with global fundraising jumping to INR 4978.45 billion in Q1 2025. These loans typically feature floating-rate coupons, short terms to maturity, and strong covenants. Moreover, mezzanine debt bridges the gap between debt and equity financing, offering some of the highest returns compared to other debt types—often between 12% and 20% annually. This hybrid structure provides lenders the right to convert debt to equity, creating additional upside potential.

4. Cryptocurrency (Bitcoin, Ethereum, DeFi)

The cryptocurrency landscape transformed in 2024 with the SEC’s approval of spot Bitcoin ETFs, making this alternative more accessible. Beyond simply holding Bitcoin or Ethereum, decentralized finance (DeFi) applications now enable investors to earn interest through lending, borrowing against holdings, and providing liquidity. Equal-weighted Bitcoin and Ethereum strategies offer balanced exposure to the two largest crypto assets, creating a smart entry point for newcomers seeking digital asset diversification.

5. Commodities (gold, oil, agriculture)

Commodities serve as effective inflation hedges while offering diversification benefits through their low correlation with stocks and bonds. Gold continues its historical role as a stable store of value during economic uncertainty, while silver functions uniquely as both precious and industrial metal. Agricultural commodities benefit from increasing global food demand driven by population growth. Crude oil remains among the most actively traded commodities worldwide, with its price significantly impacting global economies.

6. Infrastructure (renewables, transport, data centers)

Infrastructure investments are projected to require INR 8944.33 trillion through 2040, with transport and logistics needing the largest share at INR 3037.70 trillion, followed by energy/power and digital infrastructure. Consequently, data centers have emerged as a stellar investment opportunity with demand projected to grow 6-16 times by 2035. Renewable generation is expected to increase 84% in the five years to 2030, representing a total investment potential of nearly INR 506.28 trillion from 2025 to 2035.

7. Art and collectibles (fractional art platforms)

Art has returned 13.8% from 1995 to 2021, outperforming the inflation-adjusted S&P 500 return of 7.89% excluding dividends. Fractional ownership platforms have revolutionized this space, allowing investors to purchase shares in blue-chip artworks for as little as INR 1687.61. For instance, Masterworks has distributed over INR 5147.21 million back to investors across 23 paintings, with returns reaching as high as 77.3% IRR on select pieces.

8. ESG-aligned investments (green bonds, sustainable funds)

ESG investing continues gaining momentum, with 53% of high-net-worth investors considering ESG standards important in their decision-making. Green bonds fund projects with positive environmental impacts such as renewable energy, energy efficiency, and clean transportation. Meanwhile, ESG funds invest in companies meeting environmental, social, and governance criteria, attracting investors seeking both financial returns and positive societal impact. The market is maturing with SEBI proposing five new categories: Exclusions, Integration, Best-in-class/Positive screening, Impact investing, and Sustainable objectives.

How to access alternative investments in 2025

Accessing the best alternative investments is becoming increasingly democratized in 2025, thanks to new technologies and changing regulations. The path you choose depends on your financial situation, investment goals, and accreditation status.

Direct ownership vs. fund-based access

Investors typically access alternatives through three primary methods. Fund investing allows investors to pool capital with others while professional managers handle investment decisions—ideal for those seeking passive exposure with lower minimums. Direct investing involves purchasing assets without intermediaries, offering maximum control but requiring substantial expertise and resources. Co-investing represents a hybrid approach where investors contribute to a fund but also invest directly alongside the fund manager, potentially reducing fees while maintaining professional guidance.

Digital platforms and tokenization

Digital investment platforms have revolutionized alternative asset access. Companies like Blackstone, CAIS, and Opto Investments now provide streamlined interfaces for purchasing and managing alternatives alongside traditional investments. Concurrently, tokenization—representing ownership of assets as programmable code on blockchain—is creating a INR 33752.18 billion opportunity in alternative investment distribution. This technology enables improved liquidity, faster transactions, and fractional ownership of previously indivisible assets like real estate or art.

Accredited vs. retail investor access

Traditionally, alternative investments required accreditation—typically meaning individuals with INR 16876090.16+ annual income or INR 84.38 million+ net worth. Nevertheless, regulatory changes are expanding access. In March 2024, a major 401(k) provider began allowing private market investments within retirement portfolios. The SEC has likewise expanded accreditation criteria to include professionals holding specific financial licenses, regardless of income.

Minimum investment and liquidity considerations

Minimum investment thresholds vary widely: alternative investment funds (AIFs) in India require at least INR 1 crore per investor. Alternatively, interval funds offer lower minimums with periodic liquidity windows every 3-12 months. Importantly, most alternatives entail illiquidity risk—your capital may be inaccessible for 5-7 years. Yet this illiquidity often generates higher potential returns, known as the “illiquidity premium”.

Risks and hidden costs banks won’t tell you

While alternative investments offer appealing diversification benefits, they come with significant risks and costs that traditional banks rarely emphasize when promoting their conventional products.

Liquidity constraints and long lock-in periods

Alternative investments typically lock up capital for 3-10 years, making your money inaccessible during market opportunities or personal emergencies. Indeed, some private equity funds maintain capital for 10-15 years, though the trend is shifting toward shorter durations of 5-8 years. Essentially, early withdrawal penalties can reach 8-10% of invested capital.

Valuation and transparency issues

Unlike publicly traded securities, alternative assets lack standardized valuation methods. Private equity valuations often rely on subjective metrics rather than market prices, creating potential conflicts of interest. Accordingly, this opacity makes performance comparison challenging, with many managers selectively reporting favorable results.

Complex fee structures

Beyond the standard “2 and 20” model (2% management fee plus 20% performance fee), alternative investments contain hidden costs. Fund expenses, transaction fees, and carried interest calculations often include nuances unfavorable to investors. Understandably, these fees can reduce returns by 3-7% annually.

Alternative investments operate in continuously changing regulatory environments. SEC oversight varies significantly across asset classes, creating compliance risks and potential tax complications. Notwithstanding recent regulations improving transparency, gaps still exist in investor protection.

Scams and due diligence challenges

Fraudulent schemes disproportionately target alternative investment spaces. Thorough due diligence remains challenging for retail investors lacking specialized expertise, albeit increasingly important as alternatives become more accessible.

Conclusion

Alternative investments undoubtedly represent a powerful opportunity for portfolio diversification that traditional financial institutions rarely highlight. Throughout this exploration, we’ve seen how these non-conventional assets have grown tremendously, now exceeding $33 trillion globally while following different patterns than stocks and bonds.

Despite their impressive growth trajectory, these investment vehicles come with significant trade-offs. The illiquidity constraints, complex fee structures, valuation challenges, and regulatory uncertainties create barriers that banks conveniently omit from their discussions. Additionally, the high minimum investments have historically limited access to wealthy individuals and institutions.

, the investment landscape is changing rapidly. Digital platforms, tokenization, and regulatory shifts are breaking down traditional barriers, making alternatives accessible to a broader range of investors. Whether through REITs, private equity, cryptocurrencies, or fractional ownership of art, opportunities exist for various risk appetites and investment goals.

Before diving into alternatives, you should carefully weigh their potential benefits against their unique risks. While they offer powerful diversification and potentially higher returns, the lock-up periods, opacity, and complex structures demand thorough due diligence.

The future of investing likely combines both traditional and alternative assets. Rather than viewing them as competing options, consider them complementary tools in your financial arsenal. After all, the best investment strategy isn’t about choosing between conventional and alternative assets—it’s about finding the right balance that aligns with your specific goals, time horizon, and risk tolerance.