Move over, avocado toast and Kraft lattes. Millennials are now into alternative assets, and the willingness of these young investors to go against the stock and bond bandwagon is about to lift financial markets.
According to a report by Cerulli Associates, by 2048, about $124 trillion is expected to change hands through large wealth transfers, leaving nearly $100 trillion (81% of all transfers) in the wallets of baby boomers and older generations. Millennials will be the most pickpockets of any generation in the next 25 years.
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Generations passing the torch of money management to their children is nothing new. but what is New has not created an investment portfolio for assets traditionally built for long-term savings goals, such as buying a home or retirement. Bank of America found that by 2024, 72% of high-net-worth investors aged 21 to 43 said it was no longer possible to achieve higher average investment returns by relying solely on stocks and bonds. Only 28% of people over the age of 44 think so.
Erika Grundza, a certified financial planner at Betterment, one of the popular digital investment platforms born during the post-Great Recession democratization of financial markets, says that sharing private credit, real estate, digital assets or even directly owning the private company they work for are becoming more popular plays.
“As wealth is passed down from one generation to the next, this increase in alternative allocation can meaningfully change the alts market. Increased demand can increase access, drive more product innovation, and reshape the regulatory landscape over time,” Grundza says. “I believe this is more than a short-term trend, but a structural change in how the next generation creates wealth.”
Another piece of the puzzle that may have a bigger impact on the inclusion of alternatives in a portfolio than the new interests of young investors is the growing correlation between stocks and bonds as near-retirees and retirees enter the downsizing phase, where they begin to spend some of their accumulated wealth, said Sammyt Nordedt Multifide Management, director of Payset Nordidt Solutions Management. Many investors looking to protect their wealth when they’re gone move money into alternatives to diversify their holdings and protect against declines in individual markets such as equities.
Where there is demand, supply follows. Alternatives are now more available than ever, with new platforms providing access to lesser-known corners of the market, and popular exchange-traded fund (ETF) wrappers making inroads to offer providers specific asset exposure. For example, in 2024, the Securities and Exchange Commission (SEC) made the long-awaited decision to approve spot bitcoin ETFs, opening the floodgates for investors to gain easy access to crypto as they invest in an S&P 500 index fund.
“Now we have many exotic, exciting, fun, interesting and unique sources of risk and return,” says Nardini, whose company was founded in 2020 “to provide institutional-grade alternative strategies to all investors through low-cost and transparent ETF vehicles,” according to the website. Nearly 1,000 active ETFs were launched last year, surpassing the previous record of 584 in 2024, according to Morningstar.
There’s more Experts at Morgan Stanley recently wrote that alts will “continue to become more accessible with more registered funds and evergreen vehicles that provide exposure to asset classes such as private equity, private credit and private real estate.”
Some of these new products get a bad rap, and rightfully so. Alt space, in general, can pose certain risks, such as liquidity restrictions and limited transparency, so advisers say it’s important for investors to be careful in their choices.
“One of the biggest challenges in wealth transfer is just thinking about how you differentiate between what’s right and what’s smart because there’s so much shiny, shiny stuff out there,” says Nardini.
As product offerings change, so does the need for regulatory protection for investors. In December, the SEC sent warning letters that effectively bar companies from launching products that purport to deliver three to five times the daily returns of stocks, commodities and cryptocurrencies.
Some industry players also support changing the definition of an accredited investor, one who is allowed to invest in unregistered, private securities. Currently, the SEC requires individuals to have a net worth of more than $1 million, an income of more than $200,000 or meet professional standards.
Financial services firm Edward Jones, for example, advocates expanding the definition to include people who work with qualified professionals, such as financial advisers, to help them assess risk tolerance, goals and time horizons, says Steve Roschoff, the company’s managing director.
In the coming years, Nardini expects to see an increasing number of next-generation investors focusing on ways to access investment through tokenized vehicles. (Tokenization uses blockchain technology to create a digital representation, or token, of an underlying asset.)
“This is going to be a big part of the growth of this industry over the next decade,” adds Nardini. “I think the next generation of individuals will really gravitate to this kind of advanced, innovative way of thinking about investing.”
Rueschhoff pointed to the growing emergence of public-private partnerships, in which asset managers in the public space develop joint projects with private asset managers. The result, he says, is a packaged product like a balanced fund with a mix of public and private investments.
Studies also show that younger investors are more interested in environmental, social and governance (ESG) investing than their elders, which means more money is being paid to companies that prioritize climate protection and social justice.
“The money they inherit may enable them to pursue these alternative strategies, which typically require a higher minimum investment and are limited to qualified investors,” Sarah Norman, CIO head of sustainable investment thought leadership at Merrill Lynch, said in a recent report. “Sustainable and impact investing can be applied across all asset classes, equities and fixed income as well as alternative investments. Investors now have significant choice and access to how they integrate sustainability into their portfolios.”
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