The Millennial Alternative Investment Revolution: Why Younger Investors Are Reshaping Private Markets

The landscape of wealth management is undergoing a fundamental transformation, driven by an unexpected demographic force: millennials. According to recent research from Goldman Sachs, 54 percent of millennial investors express strong interest in alternative investments, compared to just 14 percent of baby boomers. This isn’t merely a generational preference, it represents a structural shift in how the next generation of wealthy investors thinks about portfolio construction, risk, and opportunity.

Kyle Niffen, Managing Director and Global Head of Alternatives Third Party Wealth at Goldman Sachs, recently discussed these findings and their implications for the future of private markets. His insights reveal not just changing preferences, but a complete reimagining of what constitutes a balanced, diversified portfolio in the modern era.

Why Millennials Are Different

The millennial conviction around alternative investments isn’t arbitrary. Their target allocation to alternatives is twice that of Generation X investors, and this cohort is rapidly accumulating capital and decision-making authority. But what drives this outsized interest?

The answer lies partly in their career experiences. Many millennials have spent significant portions of their careers at young, fast-growing companies where equity compensation was standard. That equity is now attached to companies that have become genuinely influential and valuable. They’re intimately familiar with private company ownership as part of their personal wealth portfolios—not as an exotic investment strategy, but as a lived reality.

There’s also a structural component that’s easy to overlook. Thirty years ago, approximately 8,000 companies traded publicly in the United States. That number has dropped by roughly 50 percent. The backdrop against which younger investors have spent their adult lives is one where the private market carries almost equal relevance to the public market. Some of the world’s most valuable and recognizable companies have remained private far longer than previous generations would have expected. For millennials, private markets aren’t alternative at all, they’re simply where a massive portion of economic activity occurs.

The Risk Perception Paradox

Perhaps the most striking finding from Goldman’s survey is that millennials view alternative investments as less risky than public markets. This represents a profound departure from traditional investment thinking, where illiquid private investments have historically been positioned as higher-risk allocations suitable only for sophisticated investors with long time horizons.

Two factors appear to be driving this perception shift. First, there’s the secular change that’s been unfolding over decades, the normalization of private market participation and the extended lifecycle of private companies. Second, there’s the immediate context of recent market volatility. The past several years have introduced considerable uncertainty and volatility in public equity positions. Against that backdrop, the relative stability of private valuations, which don’t fluctuate with daily market sentiment, appears less risky by comparison.

This doesn’t mean millennials are naive about risk. Rather, they’re evaluating risk differently, weighing the volatility and uncertainty they’ve experienced in public markets against the longer-term, less marked-to-market nature of private investments.

The Liquidity Question: Education Over Marketing

If there’s one topic that dominates conversations about alternative investments, it’s liquidity. Wealth managers and investors consistently cite liquidity as one of their primary concerns when considering private market allocations. The question becomes: how do you access these asset classes? Are structures marketed as “semi-liquid” actually liquid when you need them to be? Should investors even expect to tap liquidity in private markets?

Niffen is emphatic about the importance of honest, educational conversations around liquidity. The underlying assets in alternative investments are truly not liquid. While modern fund structures are more flexible than traditional private equity partnerships, offering quarterly tender windows rather than 10-year lock-ups, investor expectations should still be that these represent long-term strategic investments.

Recent market volatility has provided a harsh reminder of these realities. Even the more liquid alternative structures proved to be not very liquid at all when markets became stressed. This isn’t a failure of the products—it’s a feature of the underlying assets. You cannot instantaneously liquidate a commercial real estate portfolio, a portfolio of private company equity stakes, or a book of private credit loans the way you can sell exchange-traded stocks.

The responsible approach, according to Niffen, starts with education. Goldman Sachs takes seriously the need to speak carefully and thoughtfully about liquidity. The goal isn’t to discourage allocation to alternatives, but to ensure investors understand what they’re signing up for and structure their portfolios accordingly.

The RAAS Revolution and Set-It-and-Forget-It Capital

One framework that’s gaining traction among financial advisors is what’s called RAAS—essentially, using alternative investments as the “set it and forget it” portion of a client’s portfolio. This is the capital that should be comfortable taking on illiquidity risk, with the understanding that illiquidity should be compensated with higher returns.

The advisory relationship becomes crucial here. The best partnerships aren’t built around promoting exciting individual strategies or products, but around understanding a client’s goals, risk tolerance, and liquidity needs. This might make for longer, less immediately exciting conversations, but it creates more enduring relationships and more appropriate portfolio construction.

Clients are thinking more deeply about liquidity than ever before. The recent rate cycle has created situations where capital remained “stuck” in various structures, and market participants are still working through those dynamics. While there are reasons for optimism, secondary market volume is expected to exceed $200 billion in 2025, providing meaningful liquidity options, memory is long when it comes to liquidity challenges. Investors are asking tougher questions about how liquid funds will actually be and how managers plan to handle redemption requests.

Valuation: The Second Most Important Question

After liquidity, valuation is consistently the second biggest question investors ask about alternative investments. Recent months have heightened these concerns, with instances of marks moving dramatically, assets going from full value to zero, or different managers holding the same underlying asset at materially different valuations. What is something actually worth when there’s no daily market price?

Goldman Sachs’ philosophy prioritizes maximum transparency. The firm spends as much time discussing its valuation policy with clients as it does explaining its investment process. Every time a new valuation is marked, whether monthly or quarterly, the firm invests significant time walking clients through changes, particularly important in a rapidly changing macroeconomic environment.

The days of waiting for annual reports or waiting weeks after quarter-end to understand portfolio changes are over. That’s actually a positive development, and it’s become the standard expectation among sophisticated wealth investors.

The introduction of monthly marks represents a significant evolution. Just a few years ago, the idea that alternative investment managers would mark portfolios monthly seemed improbable. This shift is changing how managers structure their operations, how much resource they dedicate to valuation processes, how extensively they work with third-party valuation firms, and how much direct engagement they maintain with end clients.

Niffen states confidently that modern valuation marks are reinforced with rigor, conservatism, and independent verification. This represents a meaningful change from even two years ago. The specifics vary somewhat by asset class—credit, real estate, and infrastructure valuations tend to have more consistency and less potential for divergence than equity portfolios, where valuation can legitimately vary based on methodology and assumptions.

The Pari Passu Imperative

A term that’s become increasingly central to alternative investment conversations is “pari passu”—Latin for “equal footing.” Historically a legal term in credit markets ensuring equal treatment, it’s now something every wealth investor considering alternatives should understand and demand.

The fundamental question is straightforward: am I getting the same institutional-quality investment strategy in this wealth vehicle that institutional investors receive, or is it somehow different? Being pari passu means having the same seniority and access to the same deal flow as other investors in the manager’s ecosystem. This matters enormously because it determines whether you’re getting access to the manager’s best investment opportunities or something lesser.

There’s been concerning rhetoric in some institutional circles positioning the wealth channel as “exit liquidity” for institutional funds, a troubling concept that suggests wealth investors might be buying assets that institutional investors are selling. Sophisticated wealth investors and their advisors are rightfully pushing back hard against this dynamic. If the integrity and quality of investments in wealth vehicles aren’t pari passu with institutional offerings, performance will ultimately suffer, and investors will vote with their feet.

The Breadth of Interest: Beyond Private Equity and Private Credit

What’s particularly encouraging in Goldman’s survey findings isn’t just the level of interest in alternatives, but the breadth of that interest across strategies. Wealth investors aren’t simply saying they want more private equity or private credit in general terms. They’re expressing interest in diversified private credit, asset-backed real estate debt, infrastructure debt, core-plus real estate strategies, and secondary market funds.

This fluency across a wider range of alternative strategies is encouraging because diversification within alternatives, not just between alternatives and traditional assets, creates better portfolio outcomes. Investors are becoming more sophisticated about the specific roles different alternative strategies can play.

Perhaps most tellingly, investor motivations for allocating to alternatives are evolving. The traditional rationale centered on return premium, accepting illiquidity in exchange for higher returns. While that remains important, it’s no longer the only driver. In Goldman’s survey, the desire for diversification and lower correlation to traditional markets was nearly as significant as return enhancement, with only about a 10 percent difference in response rates.

This represents a sentiment shift toward viewing alternatives as portfolio ballasts and diversifiers, not merely return enhancers. It suggests investors are receiving more sophisticated, well-rounded advice about portfolio construction and the multifaceted role alternatives can play.

Looking Ahead: Predictions for the Alternative Investment Landscape

When asked about predictions for 2026, Niffen offered several conviction calls that run counter to some prevailing skepticism in the market.

Private credit, despite extensive debate and some concerns about overheating, will remain a favored asset class. The financing market is changing permanently, with corporations increasingly seeking the flexibility that private credit provides. The demand from borrowers isn’t going away.

Private equity valuations versus public market valuations have reached levels that create genuinely compelling opportunities. Niffen expects increased transaction volume and believes the return potential in private equity relative to public equities will become undeniable.

The secondaries market will remain very active. It has reached a level of maturity that makes it both attractive for buyers seeking interesting entry points and helpful for existing investors managing portfolio liquidity needs.

Finally, private real estate is positioned to benefit disproportionately from a coming rerating. After significant markdowns and repricing, the asset class offers compelling value for patient capital.

The Sophistication Shift

Perhaps the overarching theme in Niffen’s perspective is that the wealth channel has become far more sophisticated than many institutional players recognize. Wealth investors now expect institutional-quality strategies, transparent pricing, rigorous performance reporting, and detailed valuation disclosure. They ask tough questions about pari passu treatment, portfolio construction, GP co-investment, and deal sourcing.

The permanent relationship model, where wealth investors receive ongoing, proactive, responsive engagement rather than a single transaction, reflects this new reality. The wealth segment represents the largest pool of capital, the fastest-growing pool of capital, and the least allocated pool of capital to alternatives. Millennials sit at the center of that opportunity.

For alternative investment managers, the message is clear: the wealth channel demands and deserves the same quality, transparency, and treatment that institutional investors have long received. Those who recognize this shift and adapt accordingly will capture disproportionate growth. Those who view wealth as secondary or as exit liquidity will find themselves increasingly shut out of the most dynamic growth opportunity in asset management.

The millennial-driven alternative investment revolution isn’t coming and it’s already here, reshaping how private markets operate and whom they serve!