With interest rates at record highs and inflation eating away at investment returns, alternative investments have taken on a new luster for the richest of the rich.
Alternative investments are any investment outside traditional holdings like stocks, bonds, and cash. They can include real estate, hedge funds, and private credit, along with more exotic assets like rare whiskey, lustrous diamonds, classic race cars, luxury handbags, and one-of-a-kind trading cards.
In a difficult economic environment where a traditional investment strategy like asset diversification—buying different types of investments to spread out one’s risk—isn’t as effective, investments outside the traditional asset classes can help bolster the portfolios of ultra-high-net-worth individuals, defined as those with $30 million or more in assets.
Wealth Enhancement Group analyzed survey data from consulting firm Knight Frank to illustrate how wealth advisors are putting their clients’ money to work in alternative investments.
Art, classic cars, wine, and rare whiskey lead the list of “investments of passion” that are becoming more popular among the clients of wealth advisors, according to the survey. The alternative asset class has grown more popular in recent years, hitting a high of 15.5% in 2022 but falling last year to 14.9%, according to J.P. Morgan.
Alternative investments can also include cryptocurrency, which may come under pressure for its high electricity demands to power the computers for crypto mining operations. Some 65% of UHNWIs say they’re trying to reduce their own carbon footprint, and 24% are screening their investments for ESG (environmental, social, governance) compliance.
