Alternative Investments

The label "alternatives" is a catch-all for investments that sit outside conventional public markets. It covers an unusually wide range: a buyout fund acquiring manufacturing companies, a hedge fund trading global currencies, a direct loan to a mid-sized retailer, timberland in the Pacific Northwest, and a royalty stream on pharmaceutical patents. What these share is that they typically trade infrequently, if at all, and require more specialized due diligence than buying a publicly listed share.

Families commonly turn to alternatives for two reasons: potential return enhancement and diversification. Because many alternative assets do not move in lockstep with public stock markets, they can behave differently during periods of market stress — though that diversification is not always reliable when it is needed most. The illiquidity premium is one of the theoretical underpinnings for why certain alternatives may offer higher expected returns over time.

A family office investment program that includes alternatives requires more infrastructure than one focused solely on public markets. Families typically need robust due diligence processes, legal and tax expertise to handle complex fund structures, and a clear investment policy statement that defines how much of the portfolio can be locked up at any one time. Consider a founder who sold her logistics company and now holds a mix of private equity, hedge funds, and real estate — coordinating those exposures is precisely the kind of organizational work a family office is built to handle.