Alternative investments are investments outside traditional stocks, bonds, and cash. Common examples include private equity, hedge funds, real estate, commodities, and collectibles.
This article walks through the most common types of alternative investments, how each one works in practice, and what makes alternatives harder to track and report than a typical public market portfolio. It is educational content, not investment advice.
Alternatives in one sentence:
Alternative investments can add new return drivers to a portfolio, but they often come with more complexity around liquidity, pricing, fees, and reporting.
Key Takeaways
- Alternatives are not one category; they are a mix of strategies with different liquidity, risk, and fee profiles. The right question is not “should we invest in alternatives” but “which alternatives fit our time horizon and constraints.”
- The return story often depends on structure. Cash flow timing, lockups, gates, valuation methods, and leverage can change outcomes even when the underlying assets seem similar.
- The biggest mistakes are usually operational. Poor document discipline, inconsistent data from managers, and weak tracking of capital calls and distributions create reporting blind spots.
- Due diligence must include what happens after you invest. Know how valuations are produced, what reporting you will receive, and what you will do if reporting is late, incomplete, or hard to reconcile.
What are alternative investments?
Alternative investments are assets and funds that do not fit neatly into the “public stocks and bonds” bucket. They may be direct holdings, like a property or artwork. They may also be pooled vehicles, like a private equity fund or hedge fund.
Alternatives are often grouped together because they share practical traits that matter to investors.
Common traits of alternatives
• Liquidity is often limited, meaning you cannot sell quickly without a discount or a long process
• Prices may not update daily, especially for private and physical assets
• Access can be restricted, with higher minimums or eligibility rules
• Fees and terms can be more complex than traditional funds
• Reporting often arrives through statements and notices rather than live market feeds
Not every alternative investment has all of these traits. For example, some commodity funds trade on a daily basis. Some real estate investment trusts trade like stocks. However, the “alternative” label typically indicates that the investment behaves differently from a public stock or bond.
A simple way to classify alternative investments
The easiest way to make sense of alternatives is to classify them by liquidity.
Liquid alternatives
These trade frequently, and pricing is relatively easy to observe.
Examples include some commodity funds, some managed futures funds, and some publicly traded vehicles that hold alternative exposures.
Semi-liquid alternatives
These may have periodic liquidity, like monthly or quarterly redemption windows, but you still might face gates, notice periods, or limits during stress.
Illiquid alternatives
These typically require a long holding period. They may lock capital for years. They often rely on periodic valuations rather than daily prices.
Examples include private equity funds, venture funds, many private credit funds, direct real estate, and collectibles.
Quick reference table
| Alternative category | Typical liquidity | Common reporting cadence | Common documents you receive |
| Private equity and venture capital | Illiquid | Quarterly | Capital call notices, distribution notices, quarterly statements, capital account statements, tax forms |
| Private credit | Often illiquid to semi-liquid | Monthly or quarterly | Statements, interest schedules, borrower updates, notices |
| Hedge funds | Often semi-liquid | Monthly | Monthly statements, performance reports, notices |
| Real estate and real assets | Illiquid to semi-liquid | Quarterly | Appraisals, statements, rent roll summaries, operating reports |
| Commodities | Often liquid | Daily to monthly | Broker statements, fund factsheets |
| Collectibles | Illiquid | Irregular | Appraisals, purchase and sale records, insurance docs |
| Digital assets | Often liquid but volatile | Daily | Exchange statements, wallet records, tax reports |
Use this table as a starting point, not a rule. The same category can behave differently depending on how you invest. A private real estate fund has different liquidity than a listed REIT.
Examples of alternative investments
Below are the most common categories you will see in family office portfolios, institutional portfolios, and high net worth portfolios. For each category, use the same lens.
• What it is
• How you invest
• How it is valued
• Common fees and friction
• What shows up in reporting
Private equity and venture capital
What it is
Private equity and venture capital involve investing in companies that are not publicly traded, or buying public companies and taking them private.
How you invest
• Commit capital to a private equity or venture fund, then fund capital calls over time
• Co-invest alongside a fund in a specific deal
• Invest directly into a private company
How it is valued
Valuations are usually updated periodically, often quarterly. They may be based on comparable transactions, financial performance, or external valuation work.
Common fees and friction
• Long lock-ups and limited liquidity
• Complex terms and allocation rules
• Fees that may include management fees and performance-based components
• High reliance on the fund’s reporting schedule and valuation process
What shows up in reporting
• Capital call notices and funding schedules
• Distribution notices, sometimes with details on return of capital vs gains
• Quarterly statements and capital account statements
• Tax documents, often delivered later than public market forms
Private credit
What it is
Private credit is lending outside traditional public bond markets. This can include direct lending to companies, specialty finance, and other private debt strategies.
How you invest
• Invest in a private credit fund
• Participate in loan deals directly or through a platform
• Hold private notes or loan participations through a structure
How it is valued
Prices may be stable for performing loans, but credit quality can change quickly. Valuations often rely on models, discount rates, and borrower performance, not public market quotes.
Common fees and friction
• Complexity in interest accruals, payment timing, and covenant events
• Credit events can create sudden valuation changes
• Less transparency than public bonds in some structures
What shows up in reporting
• Statements showing principal balance, interest income, fees, and valuation marks
• Borrower or portfolio updates
• Notices related to restructurings, extensions, or payment issues
Hedge funds and managed futures
What it is
Hedge funds are pooled vehicles that may use long and short positions, derivatives, and other tools to pursue returns. Managed futures strategies often trade futures across asset classes and can be packaged as funds.
How you invest
• Subscribe to a hedge fund with a set redemption schedule
• Allocate through a fund of funds or managed account
• Access similar exposures through certain liquid alternative funds
How it is valued
Many hedge funds calculate monthly NAV based on underlying positions and pricing sources. Timing can vary based on administrator processes and asset complexity.
Common fees and friction
• Fee structures can be more complex than traditional mutual funds
• Redemption terms may include notice periods, gates, or side pockets
• Transparency varies by manager and strategy
What shows up in reporting
• Monthly statements, often with NAV and performance
• Risk and exposure reporting varies widely
• Notices about lockups, side pockets, or changes in terms
Real estate and real assets
What it is
Real estate includes direct property ownership and real estate funds. Real assets can also include infrastructure, energy projects, and other physical asset exposures.
How you invest
• Buy and operate property directly
• Invest through private real estate funds
• Invest through listed vehicles like REITs
• Participate in infrastructure funds or project vehicles
How it is valued
Direct real estate is often valued through appraisals, comparable sales, and income-based methods. Private funds may update valuations quarterly. Listed vehicles price daily, like stocks.
Common fees and friction
• Property-level costs like maintenance, taxes, and insurance
• Appraisal timing and valuation lag
• Complex ownership structures, especially with SPVs and financing
What shows up in reporting
• Appraisals and valuation updates
• Operating statements, rent rolls, and cash flow summaries
• Fund statements and capital account statements for fund structures
Commodities
What it is
Commodities are physical goods like gold, oil, and agricultural products. Exposure is often gained through futures, commodity funds, or vehicles holding physical commodities.
How you invest
• Buy physical commodities like bullion
• Invest through ETFs or commodity funds
• Use futures or derivatives, typically for sophisticated investors
How it is valued
Prices can be observed in public markets for many commodity exposures. Physical holdings also have storage and transaction costs that affect true outcomes.
Common fees and friction
• Storage and insurance for physical commodities
• Futures-based vehicles can have roll costs
• Commodity prices can be volatile and cyclical
What shows up in reporting
• Broker statements and position reports
• Fund factsheets or NAV reports for commodity funds
• Tax reporting can be more complex for certain structures
Collectibles
What it is
Collectibles include art, wine, classic cars, watches, sports memorabilia, and other items held partly for enjoyment and partly for potential appreciation.
How you invest
• Buy items directly
• Use marketplaces or auctions
• Participate through fractional ownership platforms, where available
How it is valued
Valuation is often subjective and depends on appraisals, recent comparable sales, and market demand. Pricing can change quickly based on trends.
Common fees and friction
• Authenticity and provenance risk
• High transaction costs through dealers and auctions
• Storage, insurance, and maintenance
• Liquidity is often limited, especially for niche items
What shows up in reporting
• Purchase records and ownership documentation
• Appraisals and insurance schedules
• Sale documentation when liquidity events happen
Digital assets
What it is
Digital assets include cryptocurrencies and other blockchain-based assets. Some are used as payment systems. Others are network tokens tied to specific applications.
How you invest
• Buy through exchanges
• Hold through custodians or wallets
• Invest through funds that hold digital assets
How it is valued
Pricing can be highly visible and updates quickly, but volatility is often much higher than that of traditional assets. Liquidity can vary by asset and venue.
Common fees and friction
• Custody, security, and operational risk
• Tax complexity due to transaction-level tracking
• Regulatory uncertainty and platform risk
What shows up in reporting
• Exchange statements and transaction histories
• Wallet records and custody statements
• Tax reports, often requiring careful reconciliation
Why alternatives feel hard operationally
The concept of alternatives is simple. You own assets outside public stocks and bonds.
The operational reality is not simple.
Most alternatives create a stream of documents and events that do not look like a normal brokerage feed. The data arrives through portals, emails, PDFs, and spreadsheets. It often arrives late. It often arrives in inconsistent formats.
Common operational challenges include:
• Tracking capital calls and distributions across multiple funds
• Keeping valuation dates and reported NAV aligned across reports
• Capturing fees and expenses consistently
• Handling multi-entity ownership and consolidation
• Answering questions like “what changed since last quarter” without rebuilding the story
This is where tools that standardize alternative investment documents can reduce manual effort. If your team spends time rekeying capital call notices and quarterly statements, consider using AI document intelligence for alternative investment statements to extract and structure those inputs before they flow into reporting.
The practical risks to explain
Alternatives are often described as “risky.” That is too vague to be useful.
A better approach is to explain the specific risks that show up in real portfolios.
Liquidity and lockups
Some alternatives cannot be sold quickly. That is not just a preference. It is often written into the terms.
If you commit to a private fund, you may need to plan for years, not months. If you buy a property or collectible, selling may take time and may depend on market conditions.
Valuation lag and stale marks
Many alternatives do not have daily prices. Valuations may be updated monthly or quarterly. Some will rely on appraisals or models.
That means “what your portfolio is worth today” may be partly an estimate, and partly based on older information.
Fees and complexity
Fees can be higher than traditional index funds. Terms can be harder to compare across managers.
Complexity also increases operational workload, which is a cost even when it does not show up as a management fee.
Concentration and hidden exposure
Alternatives can appear diversified but still concentrate risk.
Example: you may have multiple funds that own similar sectors, similar geographies, or similar underlying exposures. Without a consistent way to classify holdings, that concentration can hide.
Tax and documentation overhead
Alternative funds often produce tax documents on a different schedule than public funds. Some documents arrive late.
If you hold many funds, tax season can become a project. The operational burden rises with each additional manager and each additional structure.
How to track and report alternative investments
If you hold alternatives, tracking is not optional. It is part of owning them.
Here is a practical checklist that works for both individuals with a few alternative positions and institutions with large allocations.
Step 1: Build a clean inventory
For each alternative holding, capture:
• Investment name and structure
• Manager or counterparty
• Ownership entity or account
• Commitment amount if applicable
• Liquidity terms and key dates
• Reporting cadence and document sources
This inventory becomes your reference when documents arrive.
Step 2: Standardize the minimum data fields
At minimum, track:
• Contributions and capital calls
• Distributions and proceeds
• Net asset value and valuation date
• Fees and expenses
• Unfunded commitment
• Performance metrics you rely on, and how they are calculated
Do not start with fancy dashboards. Start with consistent inputs.
Step 3: Create a document calendar
For each investment, list what you expect to receive:
• Monthly or quarterly statements
• Capital call notices
• Distribution notices
• Tax documents
• Valuation updates or appraisals
Include expected timing and who owns follow-up when something is late.
Step 4: Reconcile what you received to what you recorded
Reconciliation does not need to be complicated.
It can be as simple as confirming that:
• Capital calls funded match cash outflows
• Distributions received match notices
• NAV changes can be explained by flows and valuation movements
• Fees charged align with stated terms
Write down exceptions. Do not let them live only in email threads.
Step 5: Report alternatives in a way that people can use
A good alternative investment report does two things:
• It shows results, like performance and current value
• It explains the inputs, like valuation dates, cash flows, and fees
This is where consistent reporting templates matter. If your stakeholders get a different format every quarter, they lose trust, even if the numbers are correct.
If you are building client or investor reporting across public and private holdings, use a reporting system that can present alternatives clearly and consistently. For example, investment reporting for multi-asset portfolios can help you turn standardized alternative data into repeatable statements and performance views.
FAQ
What are alternative investments?
Alternative investments are assets and funds outside traditional stocks, bonds, and cash. They often include private equity, hedge funds, real estate, commodities, and collectibles.
What are common examples of alternative investments?
Common examples include private equity and venture capital, private credit, hedge funds, real estate funds, commodities like gold, collectibles like art, and digital assets like cryptocurrencies.
Are alternative investments liquid?
Some are, but many are not. Many alternatives are illiquid or semi-liquid, meaning you may face lockups, redemption limits, or a long sale process.
Why are alternative investments harder to report on?
Because the data often arrives through statements and notices rather than live market feeds. Valuations may be periodic, and capital activity can be complex, especially across multiple entities.
How can I track alternatives without living in spreadsheets?
Start with a clean inventory, standardize the minimum data fields, and create a document calendar. Then use tools that reduce manual data capture and support consistent reporting across all holdings.
Conclusion
Alternative investments cover a wide range of assets, from private funds to physical collectibles. They can add diversification and new sources of return, but they also introduce new practical challenges.
The key is clarity. Know what you own. Know how it is valued. Know when information arrives. And make sure your reporting reflects the real timing and structure of each investment.
When alternatives are tracked carefully, they can be managed with the same discipline as traditional assets, even if the inputs look very different.
