Discover how alternative investments like private equity, hedge funds, and commodities help protect against market volatility

For years, the ultra-wealthy knew something the rest of us are only just catching onto.

When the markets get jittery, you don’t double down on stocks. You spread your money elsewhere, parking your cash in properties, gold bars in Swiss vaults, and fine wine, to name but a few.

The rich have been diversifying their portfolios with alternative investments for decades. Now you can too.

Alternative investments are growing in popularity, due to their stability during times of high volatility in the markets. In 2024, they accounted for around 15% of global assets under management, for a total of $22 trillion. If you go back 20 years ago they only made up 6% of global assets.

Economic turbulence has driven the shift towards alternative investments and they are much more widely available now as a result. They’re no longer restricted to hedge fund managers, millionaires, and billionaires.

Alternative investments break the mould of traditional stocks and cash savings. They’re tangible assets that hold their own value, independent of the market. They’re usually physical assets like real estate, private equity, commodities (such as gold or oil), and collectibles like fine wine or art.

In this guide, we’re going to explain why alternative investments give you a unique opportunity to grow and protect your wealth and how to get started with them.

WHAT ARE ALTERNATIVE INVESTMENTS?
Alternative assets lie outside the usual mix of stocks, bonds, and cash, but are still tied to the real economy.

• Real Estate: From rental homes to commercial buildings
• Infrastructure: Roads, bridges, energy systems, and other essential services that generate income
• Commodities: Tangible goods like gold, oil, or grain
• Collectibles: Items that grow in value over time like classic cars, art, or rare coins

STRATEGIES: HOW ALTERNATIVE INVESTING WORKS BEHIND THE SCENES
Instead of just buying and holding, alternative strategies often take a more active, tactical approach.

• Leverage: Use borrowed money to try for bigger gains, but carries extra risk
• Short-Selling: Bet on prices falling and profit if they do
• Arbitrage: Find a price mismatch between two places and profit from the difference
• Quant Models: Let algorithms analyse patterns and help you trade smarter

Some strategies used in alternative investing, such as short-selling or trading derivatives, are designed to make money whether markets are rising, falling, or flat. That’s why hedge funds often use them.

These advanced tactics can boost returns, but they come with a steep learning curve and bigger potential losses if things go wrong. That’s why most new investors are better off starting with something easier to grasp, like real estate, commodities, or private credit.

If you’re curious and want to dip a toe into strategy-based alternative investing, look into multi-strategy funds. They’re managed by experts and combine different tactics in one place, giving you a taste of various strategies while keeping things diversified and (relatively) safe.

BENEFITS OF ALTERNATIVE INVESTMENTS

Diversification
If the stock market crashes and all your money’s tied up in shares, it can hit hard. However, if you invest in alternatives alongside, you avoid putting all your eggs in one basket. These assets often hold their value or rise when stocks dip, helping steady your overall returns and cushion your portfolio.

Inflation protection
Inflation quietly chips away at what your money can buy. While cash just sits there losing value, assets like gold or property often rise with prices, helping inflation-proof your portfolio and hold onto more buying power.

Access to non-correlated returns
Alternative assets don’t always follow the stock market’s ups and downs. While shares might stumble, things like gold, real estate, or private equity offer more chances to grow in choppy or quiet markets.

Take real estate. If you own a rental property, its value doesn’t change every day like a stock price. It’s influenced by things like local demand and rental income, which tend to change slowly.

Private credit is similar. It involves lending money to businesses, who pay it back with regular interest payments. As these loans aren’t linked to the stock market, their value doesn’t bounce around as much, although there’s a chance the borrower might not pay you back.

Generating “alpha”
When you invest in a broad index fund that’s tied to the S&P 500 or FTSE 100, your returns usually match the overall market, known as “beta.” To generate beta returns, you aim to ride the market’s ups and downs without trying to beat it.

Alpha is different. It’s the extra return an investor earns by doing something smarter or more strategic than just following the market. That might mean spotting opportunities that others miss and timing decisions well. It often pays to have deep knowledge of specific sectors and apply it to make smart investment decisions.

With some alternative investments, you get direct influence over how well it performs. For instance, if you provide a company with private equity, you can get on board to help them grow by providing leadership or opportunities. You add direct value directly, which can lead to higher returns than investing in public companies.

The 6 Main Types of Alternative Investment

1. Private Equity
Private equity means investing in private companies that aren’t listed on the stock exchange, but need capital to grow or adapt. Instead of buying shares in public giants like Tesco or Apple, you back businesses that are only just starting out or looking to grow.

Investors often play an active role, helping to improve operations or expand into new markets. At the moment, there’s strong demand from manufacturing firms looking to re-shore production, and modernise supply chains.

2. Hedge Funds
Unlike traditional funds, hedge funds aren’t restricted to one approach. They might go long or short on stocks, make global bets based on economic trends, or use arbitrage to profit from price mismatches.

Quant hedge funds take it a step further by using data models and AI to uncover patterns others miss.

Many of today’s top-performing hedge funds are multi-strategy, combining different techniques under expert management to adapt to changing markets and aim for strong, steady alpha returns, even when other investments are struggling.

3. Private Credit
Private credit is when companies borrow money from investors instead of banks. It’s become popular because it’s faster and is often the only option for businesses that don’t qualify for traditional loans.

For investors, it’s a way to earn predictable returns through regular interest payments. This kind of lending really took off after 2008, when banks pulled back. It continues to grow as companies seek funding with more flexible terms.

4. Real Estate and Infrastructure
Investing in real assets like apartment buildings, office parks, or even data centres offers steady income and long-term growth.

A popular way to do this is through REITs (Real Estate Investment Trusts), which let you buy shares in real estate portfolios on the stock market. It’s a hands-off way to invest in property.

Just be aware that REITs can swing with interest rates. When rates go up, borrowing gets more expensive and some investors shift to bonds instead.

5. Commodities (Especially Gold)
Gold is often called a “crisis asset”, and for good reason. When markets wobble, gold prices tend to rise. The price of gold recently passed $3,000 per ounce, as investors seek stability in turbulent times.

Other essential goods like oil, copper, wheat, and natural gas also offer protection, serving as a buffer when inflation climbs, because the value of these raw materials usually rises along with prices.

6. Collectibles
Collectibles like fine art, rare books, sports cards, luxury watches don’t follow financial markets. But they also don’t follow logic. Prices are driven by rarity, trends, and emotion. Unless you really know the space, it’s best to treat collectibles as a hobby with potential upside, rather than a reliable investment.

What Are the Risks of Alternative Investments?

Illiquidity
With alternatives, your money is usually tied up over the long-term. Many funds have “lock-up” periods, which means you commit your cash for a set number of years. If you value flexibility, or think you might need the money sooner, then limit how many illiquid assets you hold in your portfolio.

Complexity
The more complicated the investment, the harder it is to see what’s really going on. Some alternatives involve complex strategies like leverage or derivatives. This makes it harder to judge the risks. If something seems overly complicated, it might be best to steer clear or talk to a professional first.

Fees
It’s easy to get wowed by big potential returns, but alternative funds often charge more than regular ones. When you factor in management fees and performance cuts, suddenly those headline returns don’t look so good anymore. Your profits can shrink fast, so before you invest, take a moment to calculate what those fees could add up to over time.

Lack of Regulation
With fewer rules to follow, alternative funds often do things differently, which makes them more attractive for some investors. But it also means there’s more onus on you to check everything is above board before investing. Always look closely at the strategy and terms before investing.

How to Get Started With Alternative Investments

Start small and stay flexible
You don’t need a huge budget to begin. Many modern platforms let you invest with just a few hundred pounds, euros, or dollars. This gives you the chance to try things out and see how it fits with your goals before putting in more.

Try beginner-friendly platforms
There are now easy-to-use platforms where you can invest in things like real estate funds, private companies, or hedge fund–style strategies. Just make sure the platform is regulated in your country and has strong investor protections in place.

Build confidence one step at a time
A good rule of thumb is to start small. Many investors begin with 5 to 10% of their portfolio in alternatives. As you learn more and see how these investments perform, you can dial things up to suit your comfort level and long-term goals.

Just like with traditional investments, it’s best to diversify. Don’t put everything into one alternative, and spread it across a few different types to balance risk and reward. For example:

• 40% in a real estate fund for steady rental income
• 40% in a commodities ETF to guard against inflation
• 15% in private credit for reliable returns
• 5% in collectibles (but only if you really know the market)

Are Alternative Investments a Good Fit for You?
Alternative investments are great if you’re looking to diversify your portfolio and protect against inflation. If you really know what you’re doing, you can potentially reach alpha returns with alternatives.

Thinking of giving alternatives a try? Here are three simple ways to start.

• Keep learning
  Become familiar with the different types of alternative assets and how they behave. The more you understand, the more confident you’ll feel.
• Start small
  Consider putting a modest amount into a regulated fund or platform that offers diversified exposure to see how it fits into your overall portfolio.
• Ask an expert
  If you’re planning to invest more seriously, speak with a financial adviser who can tailor a strategy that meets your goals.

At Aria Capital Management, we help investors build smart portfolios that blend traditional and alternative investments for stronger long-term results.

Get in touch today to explore how alternatives could work for you.