The Alternative Investment Revolution: How Private Markets Are Going Mainstream

The world of finance is experiencing a fundamental transformation that’s reshaping how Americans invest their money. Alternative investments—once the exclusive domain of institutional investors and the ultra-wealthy—are becoming increasingly accessible to everyday retail investors. This shift represents nothing less than a revolution in how capital is allocated and how individuals can participate in private markets that were previously closed to them.

CNBC has recognized the significance of this transformation by launching a new newsletter called “Inside Alts,” which will provide comprehensive coverage of the alternative investment landscape. Robert Frank, who will co-write the newsletter alongside Leslie Picker, explained that this expansion of coverage reflects how central alternative investments have become to the modern financial system.

The Explosive Growth of Alternative Assets

The numbers behind the alternative investment boom are staggering. Total assets under management in the alternatives space has more than doubled over the past decade, growing from $7 trillion to $18 trillion today. Industry projections suggest this growth trajectory will continue, with total alternative assets expected to reach $29 trillion by 2029. This explosive expansion reflects both the increasing sophistication of institutional investors and the gradual opening of these markets to a broader base of participants.

Alternative investments encompass a wide range of asset classes beyond traditional stocks and bonds. The category includes private equity, which involves taking ownership stakes in private companies; private credit, where investors provide loans directly to businesses; venture capital, which funds early-stage companies with high growth potential; and hedge funds, which employ diverse strategies to generate returns regardless of market direction.

For decades, these investment vehicles remained the province of pension funds, endowments, insurance companies, and high-net-worth individuals who met strict qualification requirements. However, regulatory changes and financial innovation are steadily moving alternatives down the wealth ladder, making them accessible to investors with more modest means.

The Ice Cream Analogy: From Simple to Complex

Mark Rowan, the CEO of Apollo Global Management—one of the world’s largest alternative investment firms—offers a compelling analogy to describe this transformation. Rowan explained that the investment world used to resemble a simple ice cream shop with just three basic flavors: vanilla representing stocks, chocolate representing bonds, and perhaps a little strawberry for alternatives on the side.

“We’re about to move to Baskin Robbins,” Rowan said, referencing the ice cream chain famous for its 31 flavors. The future of investing, according to Rowan, will feature countless gradations and variations of different investment types, providing investors with far more options to construct portfolios tailored to their specific needs and risk tolerances.

This expansion of choice comes with an important caveat, however. As the menu of investment options becomes more complex, investors are being asked to consider something new that Rowan calls “trust alignment.” This concept recognizes that when you invest in alternatives, particularly those with less transparency and liquidity than public markets, you’re placing significant trust in the managers of those funds to act in your best interests.

“This is going to take a long time to have a shift,” Rowan acknowledged. However, he noted that the transition is already underway and gathering momentum. “Good news, it’s been happening. We’re watching it take place in institutions. We’re watching it take place in family offices. I believe it’s going to take place in individual investors.”

The Historical Concerns About Alternative Investments

The alternative investment industry hasn’t always enjoyed a sterling reputation among critics and skeptics. Several persistent concerns have dogged the sector for years, and these objections remain relevant as alternatives move toward broader retail adoption.

High fees represent the first major criticism. Alternative investment funds typically charge what’s known as a “two and twenty” fee structure—a 2% annual management fee on assets under management plus 20% of any profits generated. These fees are substantially higher than what investors pay for index funds or many actively managed mutual funds in public markets. Critics argue that these elevated fees consume returns that should rightfully belong to investors rather than fund managers.

Limited liquidity poses another significant challenge. Unlike stocks that can be sold instantly during market hours, alternative investments often lock up capital for years or even decades. Investors who need access to their money due to unexpected circumstances may find themselves unable to retrieve it, or only able to do so by selling their positions at steep discounts in illiquid secondary markets.

Lack of transparency compared to public markets has also raised concerns. Public companies must file quarterly earnings reports, disclose material information promptly, and comply with extensive regulations designed to protect investors. Private companies face no such requirements, meaning investors in alternative funds often have limited visibility into the underlying assets their money is actually invested in.

Finally, returns haven’t always lived up to the hype. While alternative investments theoretically should generate higher returns to compensate investors for the additional fees, illiquidity, and lack of transparency, the actual track record has been mixed. Many alternative funds have underperformed simple public market indices after accounting for their higher fees.

Rowan’s Defense: The Transparency Argument

When pressed about the lack of transparency in alternative investments compared to public equities, Rowan offered a provocative counterargument. He suggested that the entire premise of the criticism is outdated and doesn’t reflect how people actually invest today.

“This notion of lack of transparency just reflects an idea that’s rooted in 40 years ago history. It’s just not the case,” Rowan asserted. When challenged that private companies and borrowers don’t provide the same level of disclosure as public companies that must report quarterly earnings and material information, Rowan shifted the conversation.

“But how do investors invest? Do investors buy stocks today or do they buy indices? Do people actually do the work? I don’t think so,” he said. Rowan’s point is that the typical retail investor today doesn’t conduct deep research on individual companies, carefully reading financial statements and assessing business fundamentals. Instead, most investors simply buy broad market index funds that provide exposure to hundreds or thousands of companies simultaneously.

If investors aren’t actually analyzing the detailed disclosures that public companies provide—if they’re just buying the entire market through index funds—then what real advantage does public market transparency provide? “There’s not that there’s no information, there’s just less information,” Rowan concluded.

This argument is intellectually interesting but also somewhat self-serving, as it conveniently justifies the business model of alternative investment firms like Apollo. Whether one finds it persuasive likely depends on one’s view of what role transparency should play in investment markets and whether the availability of information matters even if individual investors don’t personally analyze it.

Alternative Investments and the Wealthy

Robert Frank emphasized that alternative investments have long been core to how wealthy individuals and families manage their money. For high-net-worth investors, the world of private equity, private credit, venture capital, and hedge funds is often more important than what happens in public stock and bond markets.

This focus on alternatives among the wealthy reflects several factors. Wealthy investors typically have longer time horizons and don’t need immediate access to all their capital, making illiquidity less problematic. They can afford to hire sophisticated advisors who can conduct due diligence on complex alternative investments. They have enough capital to meet high minimum investment requirements that many alternative funds impose. And they’re seeking the potentially higher returns and diversification benefits that alternatives theoretically provide.

Because alternatives are so central to how the wealthy invest, Frank has spent years covering this space. Now, as alternative investments become increasingly important for corporate borrowers seeking financing and for a broader range of investors, CNBC has decided to deepen its coverage through the new newsletter. The publication aims to serve both investors seeking to understand alternative opportunities and corporations navigating this evolving financing landscape.

Redefining Sophisticated Investors

The expansion of alternative investments to retail investors raises fundamental questions about how we define “sophisticated investors.” Current securities regulations restrict many alternative investments to “accredited investors”—individuals who meet certain income or net worth thresholds, or who possess specific financial credentials and education.

These requirements exist to protect less experienced investors from complex, risky investments they may not fully understand. However, as Frank noted, the definitions have been changing. Congress has taken actions over the past decade that have reduced both the financial thresholds and the educational requirements for accredited investor status. Some advocates are pushing to eliminate these restrictions entirely, arguing that they unfairly prevent ordinary Americans from accessing investment opportunities available to the wealthy.

A recent executive order from the White House has explicitly called for expanding access to alternative investments within 401(k) retirement accounts. This policy direction suggests that regulatory barriers to retail participation in alternatives may continue to erode, making these investments available to an even broader audience through retirement accounts that millions of Americans use.

Tokenization and the Future of Private Markets

An emerging trend in making alternative investments more accessible involves tokenization—using blockchain technology to create digital tokens representing ownership stakes in private assets. This approach potentially allows private assets to be divided into smaller pieces and traded more easily, addressing some of the liquidity concerns that have historically limited retail participation in alternatives.

The regulatory status of tokenized private assets remains somewhat unclear, raising questions about whether this approach represents a legitimate innovation or an attempt to circumvent investor protection regulations. These questions will likely be resolved through a combination of regulatory guidance and legal challenges in coming years.

Mark Rowan offered an interesting perspective on whether private companies should become more public to provide retail investor access, or whether retail investors should gain more access to private companies as they remain private. Rowan believes the trend is moving in the latter direction—more companies will stay private, but more retail investors will gain access to them through funds, trading exchanges, and potentially tokenization.

From Rowan’s perspective, this doesn’t pose a problem because, as he argues, most investors aren’t carefully analyzing company disclosures anyway. In a world where investment has become dominated by index funds that simply buy the entire market, the distinction between public and private may matter less than traditionalists believe. Everything has become correlated, with major indices now dominated by a handful of large technology stocks, so the notion that public stocks are inherently safer than private investments no longer holds, in Rowan’s view.

The Liquidity Challenge

Despite Rowan’s optimistic view, the liquidity problem with alternative investments remains real and significant. Recent examples have highlighted this challenge. College and university endowments that invested heavily in private equity and other alternatives have struggled to withdraw their capital when needed. Some family offices, despite not needing immediate liquidity in theory, have become frustrated that they haven’t been able to exit their private equity investments for five years or more as the market for such exits has slowed.

For retail investors, this liquidity risk is even more acute. Wealthy investors and institutions can afford to have capital locked up for extended periods, but ordinary Americans are more likely to face unexpected needs for cash—medical emergencies, job loss, or other financial shocks. If your money is trapped in an illiquid alternative investment when you need it, the consequences can be severe.

However, proponents argue that for young investors with long time horizons measured in decades until retirement, illiquidity matters less. If you’re investing for 30 or 40 years and won’t need the money on any particular Tuesday, then locking up capital in alternatives that potentially generate higher long-term returns could make sense. The key is matching the liquidity profile of investments to the actual needs and circumstances of each individual investor.

Semi-Liquid Products: The Middle Ground

The industry has responded to liquidity concerns by creating what are sometimes called “semi-liquid” public instruments. These products attempt to provide some of the benefits of alternative investments while offering more liquidity than traditional private funds. Apollo’s BDC (business development company) represents one example of this approach, as do various interval funds and tender offer funds that provide periodic liquidity opportunities.

Blackstone and other major alternative investment firms have also created such vehicles. The question is whether these hybrid products actually deliver on their promise. Theoretically, investors should earn higher returns from alternative investments specifically because they’re accepting illiquidity. If you create products that provide more liquidity, economic theory suggests you shouldn’t expect to earn the same higher returns. You’re not bearing the illiquidity risk, so you shouldn’t receive the illiquidity premium.

Additionally, these products still typically carry the high fee structures associated with alternatives. If you’re paying elevated fees but receiving returns similar to public markets, the value proposition becomes questionable. This tension between liquidity, returns, and fees represents an unresolved challenge as alternatives move toward broader retail adoption.

The Democratization Debate

The expansion of alternative investments to retail investors prompts legitimate debate about whether this democratization represents progress or potential exploitation. On one hand, restricting certain investment opportunities to the wealthy while excluding ordinary Americans seems fundamentally unfair. If alternatives genuinely offer superior risk-adjusted returns or valuable diversification benefits, shouldn’t everyone have access?

On the other hand, the restrictions on who can invest in alternatives exist for good reasons. These investments are genuinely more complex, less transparent, and less liquid than traditional stocks and bonds. Retail investors who lack the resources to conduct sophisticated due diligence or who might need access to their capital on short notice could suffer significant losses in alternatives.

The cynical view holds that the drive to expand alternatives to retail investors is primarily motivated by the industry’s desire to gather more assets and collect more fees, rather than by genuine concern for helping ordinary Americans build wealth. With institutional investors becoming more sophisticated and fee-sensitive, alternative investment firms need to find new sources of capital—and retail investors represent an enormous untapped market.

The optimistic view suggests that financial innovation and regulatory evolution are genuinely democratizing access to investment opportunities that can help ordinary Americans build wealth. Technology is reducing costs and improving transparency, while new product structures are addressing traditional concerns about liquidity and minimum investment sizes. In this view, the expansion of alternatives represents real financial progress.

The truth likely lies somewhere between these extremes. Alternative investments offer legitimate benefits but also carry real risks, and their suitability depends entirely on each investor’s specific circumstances, goals, and risk tolerance. As alternatives continue moving mainstream, investor education will be critical to ensure people understand what they’re buying and whether it truly fits their needs.