Mary Amakihi 
Future Predictions: The Evolution of Alternative Asset Classes by 2030
Alternative assets are fast making waves in the investment space. Considering the level of expectation for this investment class, we will discuss the evolution of alternative asset classes by 2030.
As a domain, alternative asset classes are continually expanding and maturing. While it is primarily the domain of High Net Worth Individual (HNWI) investors, some retail investors are also interested in investing in these asset classes.
Following the 2008 financial crisis, when even the most diverse portfolios were swayed by excessive volatility, these non-traditional assets established their usefulness.
The intricacy, liquidity, regulatory system, and fund management style distinguish these assets from typical investments.
These asset classes often have a market correlation ranging from -1 to 0, making them less vulnerable to market-oriented or systematic risk components.
Non-traditional investments provide greater diversification and higher returns. When a stock or bond underperforms, a hedge fund or private equity firm can make a difference in the long run.
Furthermore, alternative assets can be added or replaced based on individual investing objectives and risk tolerance.
These alternative asset classes necessitate diligent fund management. The intricacies of asset composition, volatility, and elevated risk levels necessitate regular monitoring and recalibration of investing strategies.
Furthermore, the valuation of these non-traditional asset classes is challenging because these investments necessitate specialized knowledge and abilities.
Moreover, the assets in this category are one-of-a-kind, making precise appraisal impossible.
Before we get into future predictions, we must look into the history of alternative asset classes and see how they have evolved.
The History of Alternative Asset Classes
Many consider the first transcontinental railway in the United States, completed between 1864 and 1869, the first modern alternative asset class.
The railway was paid for with private cash provided by two businesses and government bonds.
Because this transaction went outside of established investment asset classes, it is now considered an alternative asset class, even though investors did not refer to it as such at the time.
However, trading and bartering existed centuries before the United States transcontinental railroad.
There are historical records of commodity trading between 4500 BC and 4000 BC, tulip bulbs trading for as much as six times the average person’s annual salary in the 1600s, and Thomas Jefferson’s writings provided records of selling older vintages of wine at a premium dating back to 1787.
Baseball cards experienced a golden moment in 1909, with one showing Honus Wagner fetching more than $6 million in 2021 due to scarcity.
Alternative asset classes may have been embedded in human nature from the dawn of civilization.
The Evolution of Alternative Asset Classes
As we know them, alternative asset classes emerged in the early 1900s. J.P. Morgan acquired the Carnegie Steel Company in 1901, which amalgamated with Federal Steel and National Tube to form U.S. Steel, the largest firm in the world at the time.
In 1946, MIT President Karl Compton co-founded the American Research and Development Corporation (ARDC), one of the first venture capital organizations.
The ARDC was a public firm that raised funding from universities, insurance companies, mutual funds, and investment trusts to make private market investments in enterprises that used World War II technologies.
In 1957, a $70,000 investment in Digital Equipment Company (DEC) with 77% ownership helped boost the company’s worth to $355 million over the next 14 years.
This deal served as a model for the potential profits of alternative investments.
J.H. Whitney & Company, founded in 1946, was another early venture capital firm that invested in entrepreneurs who could not acquire bank funding following World War II.
These early venture capital firms were instrumental in shaping the sector into what it is today.
Alfred Winslow Jones, dubbed the “Father of the Hedge Fund Industry”, established the first hedge fund in 1949.
His idea was to establish a “hedge” by shorting equities he thought would fall in value or to employ leverage on stocks he thought would rise in value.
This method was innovative at the time but still inspires hedge funds’ basic strategy today.
In the 1960s and early 1970s, alternative asset classes increased quickly. The 1974 stock market meltdown resulted in regulatory changes in the business.
The Employee Retirement Income Security Act (ERISA) was enacted, allowing pension funds to invest in alternative investments. The 1980s saw an increase in private equity investments and leveraged buyouts.
Alternative asset classes have grown in popularity, with alternative assets under management reaching $13.32 trillion at the end of 2021, and Preqin research projects will rise to $23.21 trillion by 2026.
It’s good that we have seen the history of alternative asset classes because we now know where they are coming from and their journey so far. Now, let us get the concept of alternative asset classes straight.
What are Alternative Asset Classes?
An alternative asset is a financial asset that does not fall into one of the traditional investment categories. Stocks, bonds, and cash are examples of traditional categories.
Private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts are examples of alternative asset classes. Real estate is also frequently categorized as an alternative asset.
Because of their complexity, lack of regulation, and degree of risk, most alternative investment assets are owned by institutional investors or accredited, high-net-worth individuals.
Unlike mutual and exchange-traded funds (ETFs), many alternative asset classes have high minimum investments and fee structures.
In addition, these investments need more opportunities to publish verifiable performance data and advertise to prospective investors.
Although alternative assets have higher beginning minimums and upfront investment fees, transaction costs are often lower than those of traditional assets due to lower levels of turnover.
Most alternative assets are relatively illiquid, especially when compared to traditional counterparts.
Let us look briefly at the types of alternative asset classes.
Types of Alternative Asset Classes
Some of the types of alternative asset classes are;
- Commodity
- Real Estate
- Arts and collectibles
- Venture capital/ Private Equity
- Cryptocurrencies
Commodity
Raw materials such as gold, silver, oil, and agricultural products are examples of commodities.
Due to the underlying characteristics of what they are, investors can invest in these tangible items that have real-world applications and frequently continuous demand.
Gold’s price, for example, is probably more stable because it is used in various industries and is seen as a store of wealth.
Real Estate
Investing in real estate involves both actual properties and property-based securities. Investing in real estate crowdfunding platforms, investment trusts (REITs), and mutual funds is also an option.
In addition to tangible asset capital appreciation, investors seek operating income to generate continued reliable cash flow.
Arts and Collectibles
Some investments can also serve as a pastime, like art, sports memorabilia, entertainment memorabilia, or other collectibles.
These artifacts may have historical value or gain value over time when related persons (for example, the artist, the associated movie star, or the associated athlete) become more historic.
Venture Capital/Private Equity
Venture capital and private equity are the same as stock investments.
Instead of buying and selling shares of public companies on the open market, buyers may look for other ways to put money into private companies or start-ups.
Cryptocurrencies
Cryptocurrency is a new type of digital cash seen as an alternative asset, unlike stocks and bonds.
Some might say cryptocurrency isn’t an excellent way to protect yourself from other risky investments, but the benefits of staking it could give you capital growth or passive income.
Now, let us look at the future of alternative asset classes.
Future Predictions of Alternative Asset Classes By 2030
The alternative asset market is expected to increase during the projected period between 2023 and 2031.
In 2022, the market was growing steadily, and with significant players increasingly adopting strategies, the market is likely to rise over the projected horizon.
North America, particularly the United States, will continue to play a vital role that must be noticed. Any changes in the United States could impact the development trend of alternative asset classes worldwide.
North America’s market is predicted to expand significantly throughout the forecast period.
The region’s high adoption of sophisticated technologies, as well as the existence of significant players, are projected to provide ample growth prospects for the market.
Europe also plays an essential part in the worldwide market, with a spectacular growth in CAGR from 2022 to 2029.
The amount of alternative asset classes is estimated to reach multimillion USD by 2029, up from 2022, at an unexpected CAGR between 2022 and 2029.
Despite fierce competition, investors are still enthusiastic about this market because the global recovery trend is evident, and more fresh investments will enter the field.
Final Thoughts
Alternative asset classes, like the future, are intrinsically hazardous and fascinating.
Like most exciting things, alternative asset classes mix potential with risk, so you must be cautious. It can get burnt in alternatives, so you must know your stuff.
On the other hand, if you know what you’re doing, alternative asset classes are where you’ll find the most advantage.
You can’t plan for every possible eventuality, but you can study the area, learn about past and present patterns, and make intelligent investment decisions.