By Alexandra “Ali” A. Bayler, Managing Director

The surge in alternative investment offerings to affluent families creates opportunities — but also real risks. Like any complex endeavor, investing in alternatives is best pursued alongside specialists with proven track records, keen attention to detail, and excellent execution.

The speed, structure, and scale at which the largest institutions now distribute alternative investments often benefit the institutions far more than the families.

For decades, institutional investors — endowments, pensions, sovereign wealth funds, and large family offices — have used alternative assets such as private equity, private credit, hedge funds, and niche real estate to diversify portfolios, access unique returns, and manage risk. These opportunities emerged in less efficient parts of the market where investors could provide “patient” and flexible capital. Many of the most talented fund managers have historically partnered with institutional investors on a highly selective basis. Their objective was not to maximize assets under management, but rather to raise sufficient capital to execute their investment strategies, while keeping focus on investing, not marketing or investor relations. Importantly, these fund managers also invested much of their own personal net worth in their strategies, creating a shared alignment around performance rather than raising the next dollar.

The professional investment teams inside large endowments and family offices — often referred to as “allocators” — were patient, well-resourced, and experienced across market cycles and asset classes. These allocators were good partners to their investment managers, often able to write a single large check quickly, supported by relationships that often spanned decades. In essence, this community of professional allocators and fund managers had a shared focus on talent and performance. In many cases, the investments sustained universities and philanthropic entities where portfolio returns were critical to spending. Performance outcomes were subject to public scrutiny, and allocators risked their careers in the event of underperformance.

A Shift in Access
Fast forward to today: there has been a tidal wave of access to alternative investments. There has been a dramatic increase in the commercialization and accessibility of alternative asset classes and related products. These offerings are being created and sold by large institutional firms and small retail-oriented RIAs to a broad audience, including ultra-high-net-worth investors. The amount of capital raised and deployed by the largest firms is seemingly limitless.

While there can be significant value to investors across the alternative investment spectrum, this commercialization — some even call it commoditization — brings significant risks for those investing without relevant experience. In addition to the increased spread in performance outcomes, the focus on growth at all costs by some fund managers erodes excess return potential, both by reducing sensitivity to valuations and by introducing multiple layers of fees. As alternative investments become more mainstream, a much wider swath of investors must be more informed about what they are being sold to ensure they understand the potential returns, risks, and liquidity limitations of these investments.

What Investors New to Alternative Investments Need to Know

1. Performance Dispersion Is Wide and Persistent
In private markets, manager selection is paramount. The spread between top and bottom managers in private equity can exceed 20% over historical periods. The top end of this range may justify the complexity, but lower returns can significantly detract from overall portfolio performance. Like any investment, the value comes from constructing a portfolio with the appropriate amount of sound private equity investments, managed by experienced teams offering fair terms.

2. Fees Erode Returns
Fee structures in alternatives are often complex and layered: management fees, performance fees (“carry”), fund expenses, additional advisory fees, even entry and exit fees. These costs can significantly erode returns and are often difficult to detect. Investors must evaluate net returns after all fees and ensure transparency across every layer of cost.

3. Conflicts of Interest Are Common
Portfolio managers and outsourced CIOs may steer investors toward proprietary funds or products with embedded fees or commissions. This misalignment — where product distribution is prioritized over investment merit — can compromise outcomes. Institutional investors mitigate this by insisting on open architecture (analyzing outside managers with no revenue conflict), fiduciary responsibility (putting clients’ needs first), and alignment (being incentivized by performance, not fee revenue).

4. Portfolio Construction Always Matters
Even with excellent managers, poor position sizing or over-concentration can undermine results. Institutional investors build portfolios that balance return targets with liquidity needs, investment diversification, and risk budgets. Spending time understanding how a manager has performed in different market scenarios is critical to determining how they will contribute to or detract from broader portfolio goals, especially during market stress.

5. Expertise, Not Access, Drives Long-Term Success
Alternatives are not “set-it-and-forget-it” investments. They require ongoing oversight, as well as specialized knowledge and networks. Investors must understand the underlying assets, stay informed about the key individuals managing the strategies, and regularly evaluate factors like liquidity, use of leverage, changes in strategy, and consistency of performance across cycles.

Final Thought: Specialization Over Distribution
Access does not equal advantage. Alternatives can enhance returns, diversify risk, and build resilience to meet objectives, but only when executed effectively. Offerings range from specialized and thoughtful to commoditized and subpar. It takes experience to ask the right questions, assess team fit and terms, and monitor changes and outcomes. Given the broader distribution of alternatives — combined with the cost and complexity of fees, strategies, and fund structures — affluent families without personal experience should seek guidance from professionals with deep asset class expertise who avoid conflicts of interest. Understanding which alternative investments to pursue, and how to incorporate them into a portfolio, can be the difference between compounding wealth and quietly eroding it.

Alexandra “Ali” A. Bayler is a managing director at New Republic Partners, leader of the firm’s Mid-Atlantic office, and member of the firm’s investment committee. She serves families and institutions, leveraging the firm’s extensive resources across investments, governance, generational planning, philanthropy, and client service. 

Reach her at info@newrepublicpartners.com

Disclosures
The opinions expressed are those of New Republic Partners and are subject to change without notice. This content is for informational purposes only and does not constitute investment advice or a recommendation to invest in any specific product or strategy. New Republic Capital, LLC (doing business as New Republic Partners) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about New Republic Capital’s advisory services can be found in its Form ADV Part 2 and Form CRS, available at adviserinfo.sec.gov or upon request. The material presented has been derived from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Past performance is not indicative of future results. New Republic Partners offers proprietary private investment funds in certain asset classes to its clients. These proprietary vehicles may result in performance-based compensation to the firm in connection with certain investments.