Alternative investments refer to assets outside the traditional stock and bond markets. In Australia, these investments span a broad spectrum – including private credit, private debt, real estate, infrastructure, hedge funds (often offered as “liquid alternatives”), and specialised managed funds. These options exist to help investors aim for higher returns, improve portfolio diversification, and offer some protection against market downturns. With conventional asset classes facing challenges (such as market volatility and lower yields), many Australian investors are exploring alternative assets to bolster their portfolios. However, despite growing interest, some investors remain hesitant due to negative press or misconceptions that can paint alternatives in a “risky” or uncertain light. Below, we address some of the most prevalent misconceptions about alternative investments in Australia – and why they don’t hold up under scrutiny.
Common Misunderstandings about Alternative Investments
All Alternative Assets Are New
One widespread myth is that alternative assets are a recent invention – that every opportunity outside stocks and bonds is brand new or untested. In reality, many alternative investments have long track records spanning decades. For example, hedge funds (often considered a classic alternative investment) have been around since the 1940s. Private equity and real estate – both typically classified as alternative asset classes – have also been part of investor portfolios for generations.
While it’s true that some alternative asset classes are relatively new (cryptocurrencies, for instance, only emerged in the last decade or so), the label “alternative” does not equate to “brand new.” Many alternatives are well-established with historical performance data to draw on. In short, all alternative assets are not new – some are among the oldest investment categories around, even if they fall outside the traditional stock and bond universe.
Alternative Investments Are Inherently Risky
Another common misconception is that alternatives are inherently riskier than traditional investments – that they’re the financial “wild west” of investing. It’s certainly true that alternative investments have unique characteristics and can carry significant risks, especially if an investor doesn’t fully understand the specific asset or strategy. Many alternatives employ complex tactics – for example, a hedge fund or private fund might use leverage (borrowed money), short selling, or derivatives to boost returns. On the surface, these non-traditional strategies can make an investment seem more volatile or higher-risk than a plain stock or bond.
Infact, it is a mistake to think they are universally more dangerous. Alternative investments are often designed to mitigate risk and manage volatility over time when used as part of a diversified portfolio. The key is that alternatives typically have different performance drivers than stocks or bonds. Many alternative asset classes have historically low or moderate correlation with mainstream markets, meaning they don’t move in lockstep with stock market swings. This provides a powerful diversification benefit. By adding alternatives to a portfolio, investors can potentially reduce overall volatility and drawdowns.
Moreover, the sophisticated strategies used by alternatives are intended to deliver better risk-adjusted returns than one might get from traditional investments alone. In other words, while an alternative investment might involve complexity or specific risks, it can improve the portfolio’s overall risk/reward profile. When stocks and bonds are underperforming, alternatives may continue to produce returns, helping keep the portfolio on track during market downturns. These assets can even play a defensive role – preserving capital when markets are turbulent – while still providing new avenues for growth. The bottom line: alternative investments are not inherently “too risky” when approached wisely; on the contrary, they can reduce portfolio risk through diversification and skilled management
Alternative Investments Are Illiquid
It’s often assumed that all alternative investments are illiquid, meaning your money will be locked up for years with no way to access it. This is an oversimplification. In reality, the level of liquidity varies widely across alternative assets and investment structures. Yes, some alternatives are by nature long-term and relatively illiquid – for instance, private equity funds or infrastructure projects might require investors to commit capital for several years. Such investments do have longer lock-up periods, and you generally can’t sell out at a moment’s notice. However, not all alternatives are like this. Many alternative investments offer far more liquidity than people realize. Certain hedge funds, real estate investment trusts (REITs), or managed funds allow periodic redemptions (e.g. quarterly or monthly), and there are even mutual funds or exchange-traded funds known as “liquid alternative” products that provide exposure to alternative strategies with the ability to buy or sell shares on the market.
In addition, alternative asset managers have developed structures to accommodate investors’ liquidity needs. Today, it’s not uncommon to find tailored funds that invest in alternative assets but still permit shorter investment horizons or easier exit options. It’s also important to recognize why some alternatives are less liquid: investors are usually rewarded for giving up liquidity. Illiquid investments tend to offer higher return potential as compensation for the lock-up – a concept known as the “illiquidity premium”. In other words, when you invest in a less liquid alternative asset, you typically expect higher returns than you would from a comparable liquid investment. This trade-off means that while some alternatives do tie up capital, they offer the prospect of greater gains in return. Ultimately, the idea that all alternative investments are illiquid is a misconception – there are plenty of options on the more liquid end of the spectrum, and even the illiquid ones provide potential benefits that can make the commitment worthwhile.
Alternative Investments Are Inaccessible to Regular Investors
The final misconception is that alternative investments are only for institutional players or the ultra-wealthy – in other words, “regular” investors can’t get in on these opportunities. Historically, there is truth to this: decades ago, many alternatives (like hedge funds, private equity, or venture capital funds) were available only to large institutions or accredited investors with very high net worth. Minimum investment thresholds were steep, and regulatory rules often restricted participation. This created a perception that alternatives were an exclusive club closed to everyday Australian investors.
However, in recent years, the landscape has undergone significant changes. The growth in popularity of alternative assets, combined with financial innovation, has lowered the barriers to entry. Today, many alternative asset managers and investment platforms offer products targeting a broader investor base – including affluent retail investors and those classified as wholesale or sophisticated investors in Australia. These days, alternative investments are increasingly accessible to individuals (provided they meet certain suitability or knowledge criteria) rather than being limited to institutions. For example, there are managed funds that pool investor money to invest in private credit or real estate projects, with minimums that a wider range of investors can meet. Some alternative investment opportunities are even available on public markets – such as listed investment trusts or exchange-traded funds that focus on alternative assets – allowing regular investors to buy in through their brokerage accounts.
Integrating Alternative Investments into a Portfolio
When considering adding alternative investments to a portfolio, investors must recognise some key differences in strategy and objectives upfront. Unlike traditional assets, alternatives can exhibit different behaviour and serve various roles in a portfolio. A useful approach is to evaluate each alternative opportunity from two distinct perspectives: the type of asset you are investing in, and the investment vehicle or structure through which you invest.
Asset type: First, examine the nature of the underlying asset or strategy (for example, is it debt, equity, real estate, commodities, currencies, etc.?) and determine whether it pursues short-term gains or long-term growth. These factors will influence how the alternative investment is likely to perform relative to traditional assets. For instance, an alternative asset based on short-term credit loans will behave differently from one focused on long-term property development or on trading foreign currencies. Understanding the asset type is crucial for investors seeking to reduce volatility or target specific outcomes – it helps clarify the role that alternative investments might play (income generation, capital growth, inflation hedge, etc.) and how they might respond during different market conditions.
Investment vehicle: Next, consider the form or structure in which the alternative asset is offered. Alternatives can be accessed via various investment vehicles such as private funds, hedge funds, real estate investment trusts (REITs), managed futures accounts, or global macro funds. Each vehicle comes with its own framework regarding risk/return profile, liquidity terms, management style, and regulatory oversight. For example, a private credit fund may have quarterly redemption windows and a certain risk level, whereas a liquid alternatives mutual fund might offer easier entry and exit but with different return expectations. By examining the investment vehicle, you can assess practical aspects, such as how easily you can invest or withdraw, the fees and transparency you can expect, and whether the structure aligns with your needs (for example, whether you need a regular income or want flexibility).
Considering an alternative investment from both the asset type and the investment vehicle angles can help you determine how it fits into your broader portfolio. Blending a variety of asset types – from market-neutral hedge strategies to real assets like property or infrastructure – can mitigate overall portfolio risk through diversification. Meanwhile, using different investment vehicles allows you to address specific requirements like liquidity or regulatory compliance. In essence, a well-rounded approach to alternative investments means diversifying not just what you invest in, but also how you invest in it, to create a more resilient and tailored portfolio.
Alternative Investment Funds in Australia
As discussed, alternative investments have the potential to boost returns, generate steady income, and provide valuable diversification for Australian investors. For these reasons, alternatives are gaining recognition as an important component of a sophisticated investor’s overall strategy. Trivesta is an Australia-based investment firm that specialises in alternative investment funds, offering wholesale investors a unique range of products designed to deliver uncorrelated returns and a more balanced portfolio. By focusing on innovation and risk management, Trivesta’s funds aim to provide investors with access to attractive long-term performance, free from the high volatility of traditional markets. Below, we outline Trivesta’s flagship alternative assets to provide an educational overview of the options available.
Trivesta Protected Yield Fund
The Trivesta Protected Yield Fund is a corporate bond-based alternative designed for wholesale investors seeking a stable income stream. It targets a 10% annual return, with monthly distributions. The fund’s strategy deploys capital in a trading program across highly liquid markets, enabling regular payouts and flexible redemptions. Rigorous risk controls underpin the fund. Strict trading limits and a structural safeguard (a subordinated capital layer that absorbs initial losses) help protect capital and keep volatility low. This combination of consistent income, downside protection, and liquidity makes the Trivesta Protected Yield Fund a distinctive option among alternative investments.
