What to Know Before Diving into the Rapidly Growing Alternative Investment Market

By Dan O’Neil

Alternative asset classes like real estate, private equity, and private debt were traditionally the realm of the wealthy who gained entry through their wealth managers and private fund connections. However, this landscape is rapidly changing. Hundreds of thousands of individual investors* have now gained access to alternative investments through their tax-advantaged retirement account, and that number continues to grow as interest in alternatives increases.

As more avenues open to alternative investments, it’s essential to understand the various ways to access these asset classes and the potential benefits and considerations of each approach.

Seismic shift to alternatives

Alternative asset classes are projected to grow by 17% annually through 2029, reaching over $3 trillion, from about $1.4 trillion currently. The availability of alternative asset classes will allow more investors to benefit from diversification and growth potential with these investments.

Traditional financial advisors are recognizing the benefits of alternative asset classes in their clients’ portfolios. According to a Q4, 2024 study by Fuse Research Network, these advisors anticipate significant shifts toward offering their clients less liquid alternative investments such as non-publicly traded real estate investment trusts (REITs), private equity, and private lending funds.

The cost of wealth management firms

Understanding fees associated with alternative investing through a wealth management firm is important to make an informed decision as to the right approach for you. In some instances, fees may dramatically reduce your returns. Non-traded REITs, for example, typically charge 10-15% in fees just for access to these investments – a substantial cut of your potential profits.

This fee structure creates a fundamental timing issue. Alternative investments like real estate and private equity are naturally illiquid and slow to mature, often taking 3-5 years before generating significant returns. Yet wealth management firms need to collect their fees regardless of whether your investment is making money.

Consider a typical commercial real estate project:

• You invest as a Limited Partner at the beginning
• Construction takes 18-24 months
• The property then enters lease-up phase before generating substantial cash flow
• Full returns only come after the property is sold, which could be years later

If market conditions turn unfavorable, the General Partner might refinance rather than sell, further delaying your full return.

These investments may also include additional profit-sharing arrangements where fund managers claim 20% or more of profits above certain thresholds – creating a double layer of fees eating into your investment returns.

Alternative investing avenues

There are other avenues investors can take to achieve greater control while reducing fees and gaining potential tax advantages.

Investors can participate in these alternative assets with the additional benefit of tax-free compounding growth. Retirement funds can be deployed through a self-directed IRA, Roth IRA, SEP, SIMPLE IRA, or Solo 401(k), through a custodian qualified to hold these assets.

As a directed custodian, Equity Trust enables account holders to invest their IRAs into many of these offerings. Because directed custodians don’t provide advice, they don’t charge advisory fees or commissions on the investments you select.

Selecting an investment option

With the breadth of asset classes and individual investment options available, it can be challenging to identify the individual investment opportunity that aligns with your objectives.

For those with plenty of time on their hands, one option is to pore over the more than 14,000 new Regulation D filings, as reported by Convergence, for pooled investment vehicles in the U.S.

There are more efficient and cost-effective approaches as well, including specialized platforms that curate investment offerings across asset classes including real estate, private equity, and private debt. These platforms typically charge significantly lower fees than traditional financial advisors and often co-invest in the opportunities they present—aligning their interests with yours.

Our account holders can invest in offerings on platforms like Yieldstreet and Holdfolio with just a few clicks through direct integrations on our online investor portal WealthBridge.

We provide access to the widest range of alternative investments of any directed custodian while allowing you to maintain the tax-advantaged status of your retirement account. In addition to direct connections through WealthBridge, our Investment District online marketplace enables investors to browse a variety of investment providers across several asset classes.

To learn more about how to invest in alternative asset classes in your retirement account or to open a self-directed IRA, schedule a call with an IRA Counselor.

Dan O’Neil is Chief Marketing Officer at Equity Trust Company.

*Equity Trust Company has more than 404,000 accounts under custody and administration as of 2/1/2025