Alternative investments: What assets are available and how private investors can get started

Is your portfolio made up of ETFs and individual stocks, and you’re wondering what else is out there? That is exactly what the term 'alternative investments' describes: assets that do not belong to the classic building blocks of a portfolio. These include private equity, private credit, hedge funds, commodities and real estate. Family offices, foundations and pension funds have held such assets for decades. It is only in recent years that private investors have been able to access many of these, usually via regulated funds.

Alternative investments at a glance

• Alternative investments are assets outside of classic asset classes such as stocks and bonds, for example private markets, hedge funds, commodities and real estate.
• They are sometimes driven by different factors than the stock market and can help diversify a portfolio. However, there is no guarantee of this.
• Private investors usually invest via regulated products: ELTIFs for private markets, long-short funds for hedge fund strategies, ETCs for commodities and open-ended real estate funds for property.
• In Germany, classic hedge funds are only available to professional and semi-professional investors.
• At NAO, you choose from a hand-picked selection: we only include 1 in every 8 funds.
• Alternative investments often tie up your money for years and usually cost more than an ETF. Losses are also possible, and in the worst-case scenario, you could lose your entire investment.

What are alternative investments?

Alternative investments encompass all asset classes beyond the three classics: stocks, bonds and cash. There is no fixed list; the term is defined more narrowly or broadly depending on the source. They usually include:

• Private markets: Private equity, venture capital, private credit and infrastructure, i.e. equity interests and loans that are not traded on the stock exchange
• Hedge funds and funds that use similar tools
• Commodities such as gold or oil
• Real estate, if you invest directly or via real estate funds
• Collectibles and cryptocurrencies, such as art or Bitcoin

What these investments have in common is that their value is less directly dependent on the ups and downs of the stock and bond markets. Furthermore, you cannot buy or sell many of them at any time. For an overview of all asset classes, both traditional and alternative, see our article on the different types of asset classes.

In legal terms, you will encounter the term AIF, short for Alternative Investment Fund. Under the German Capital Investment Code (KAGB), this refers to any investment fund that does not follow the EU rules for traditional retail funds. An AIF does not necessarily have to be exotic; every open-ended real estate fund also falls into this category.

The most important alternative asset classes

private markets

Private markets is the umbrella term for investments in companies and projects outside the stock exchange. Private equity funds invest in established companies and develop them over several years. Venture capital finances young companies in their early stages, while private credit provides loans to companies outside of traditional banks. Infrastructure funds invest in power grids or data centres and earn money from long-term contracts.

Our basic guide explains how these four areas work and how they differ from the stock market What are private markets?. This also includes investments in companies shortly before their IPO; you can find out more in the article Investing pre-IPO.

Hedge funds

Hedge funds have largely free rein in their strategy. They can bet on falling prices via short selling and use leverage, i.e. using borrowed money to take larger positions. Many strategies aim for a result that is less dependent on the general stock market trend.

In Germany, traditional hedge funds are reserved for professionals: only professional and semi-professional investors are permitted to invest, the latter usually with at least 200,000 euros. As a private investor, you should instead use regulated retail funds with a long-short strategy, which use individual hedge fund tools to a limited extent. You can read about what is possible for you in the article Hedge funds for private investors.

We discuss why large asset managers are once again increasing their weighting of hedge funds in Episode #51 of our podcast Diversify. The reason for this was a 2025 recommendation from the BlackRock Investment Institute to increase the share of hedge funds in portfolios by five percentage points.

Commodities

Gold is the best-known commodity in a portfolio, but there are also industrial metals, energy sources such as oil, and agricultural commodities. Commodities pay neither interest nor dividends; your result depends solely on price performance. Private investors usually invest via ETCs, exchange-traded securities that track the price of a commodity, or via shares in mining and energy companies. Many consider gold a hedge against crises, although its price can also fluctuate significantly.

Real estate

Real estate can provide ongoing rental income and potential capital appreciation. If you do not want to buy a property yourself, you can invest via open-ended real estate funds, listed real estate shares, or funds that hold real estate as one component alongside other private market investments. Even with open-ended real estate funds, you cannot always access your money immediately. Holding periods and notice periods vary depending on the fund.

Collectibles and cryptocurrencies

Art, classic cars, watches, and cryptocurrencies are also counted as alternative investments. They are difficult to value and do not generate ongoing income. For most of these investments, there are no regulated funds that bundle them for private investors. We therefore only touch upon them briefly here.

Diversification: What role do alternative investments play in a portfolio?

The most important reason is diversification. If a portion of your wealth is tied to things other than the stock market performance of large corporations, a stock market crash will hit you less hard. An infrastructure fund earns money from grid fees and long-term contracts, while a private credit fund earns from interest payments from companies. With private markets, there is also the illiquidity premium: those who lock their money away for longer expect a higher return in exchange. However, this is not guaranteed.

The UBS Global Family Office Report 2026 shows just how much ultra-high-net-worth families rely on this diversification. The 307 family offices surveyed, with an average wealth of 2.7 billion US dollars, held a combined 42 per cent of their portfolios in alternative asset classes in 2025. The largest block was private equity at 17 per cent, followed by real estate at 11 per cent and hedge funds at 6 per cent. More than a third of them (37 per cent) are considering increasing their hedge fund allocation over the next five years.

To be honest, the diversification effect does not apply in every phase. In severe crises, many asset classes often fall simultaneously. Furthermore, private market funds value their holdings less frequently than the stock market. Their values therefore fluctuate less on paper, but this does not reduce the actual risk.

How much of your wealth should be in alternative investments is an individual question. It depends on how long you can do without the money and how much volatility you can withstand. You can find more on the logic behind this in our article on Investment diversification.

How private investors can get started with alternative investments

Today, there are regulated products for many alternative investments that you can buy via your brokerage account. Which one is suitable depends on the asset class:

• Private markets: usually via an ELTIF, a European fund structure for non-exchange-traded assets. Since the ELTIF 2.0 reform, which has been in effect since 10 January 2024, the law no longer stipulates a minimum investment for private investors. Our guide explains how an ELTIF is structured overview of ELTIFs. An ELTIF can have a fixed term or be set up as an evergreen fund. Evergreen funds do not have a fixed maturity date, continuously accept new capital, and allow redemptions at fixed intervals, often with caps. More on this in the article How evergreen funds work.
• Hedge fund strategies: via long-short funds. These are regulated retail funds that, in addition to classic stock purchases, can also bet on falling prices.
• Commodities: via ETCs, which are traded on the stock exchange.
• Real estate: via open-ended real estate funds, which you can buy via the stock exchange or directly from the fund company.

At NAO, you can find alternative investments from several areas in one app: funds for Private Equity,Venture capital,infrastructureandprivate credit. In addition, there are multi-asset funds, which bundle several private market components, including real estate, and Long-short strategies from J.P. Morgan and UBS. NAO does not offer commodity ETCs or cryptocurrencies.

Risks of alternative investments

Alternative investments can help diversify your portfolio, but they come with their own specific risks:

• Capital commitment: Many funds only allow redemptions on specific dates, sometimes only after a lock-up period and subject to limits. With closed-end funds, your money is tied up for the entire duration of the fund.
• Valuation: Private companies and projects do not have a daily stock market price. Funds value them using models and benchmarks, so the actual sale price may differ.
• Costs: Actively managed funds cost more than index ETFs, and some also charge a performance fee. You can find the total costs in the Key Information Document (KID).
• Leverage and short selling: Strategies that use these methods can result in greater losses than a standard equity fund.
• Managers: The performance of an alternative investment depends heavily on the decisions made by the fund manager.
• Loss:Losses up to the total loss of the invested capital are possible.

What does this mean for you?

For your portfolio, alternative investments are primarily a building block for greater diversification. Family offices show how this can be done. According to the UBS report, they allocate 42 per cent of their portfolios across several alternative asset classes, ranging from private equity and real estate to hedge funds. This figure is not a blueprint for private investors; family offices have different sums at their disposal and plan across generations. However, the principle can be applied: distribute your wealth across several building blocks that are linked to different things.

Alternative investments is a collective term for very different types of assets. A gold bar has little in common with a private credit fund, other than the fact that neither belongs to the category of stocks or bonds. Before you invest, you can clarify the following for yourself:

• How broadly is your portfolio currently diversified? An alternative building block is most effective when it performs differently to your stocks and ETFs.
• How long can you afford to lock away your money, and do you need access to it at all times?
• What role should the investment play in your portfolio: generating regular income or long-term growth?
• What are the costs of the fund, and when can you access your money again? The answers can be found in the Key Information Document (KID).

Do you have questions about individual funds in the NAO app? Our customer service team is available to help you personally on weekdays. Please feel free to get in touch.

FAQ

What are alternative investments?

Alternative investments are assets outside of traditional asset classes such as stocks and bonds. These primarily include private markets, hedge funds, commodities, and real estate.

Which alternative asset classes are there?

The most important ones are private equity, venture capital, private credit, infrastructure, hedge funds, commodities, and real estate. Art, collectibles, and cryptocurrencies are also often included.

Can private investors invest in hedge funds?

Not in traditional hedge funds; in Germany, these are only open to professional and semi-professional investors. Private investors can invest via regulated long-short funds that use individual hedge fund tools.

What percentage of alternative investments should be in a portfolio?

There is no fixed rule. The deciding factors are how long you can afford to lock away your money and how much volatility you can withstand.

How can I invest in alternative investments with NAO?

In the NAO app, you will find funds for private equity, venture capital, infrastructure, private credit, multi-asset funds, and long-short strategies. Our investment team has vetted every fund; we only include 1 out of every 8 funds. Depending on the fund, you can invest via a lump sum or a savings plan.

This article is for information purposes only and does not constitute investment advice. Investments in private markets are long-term, capital is tied up for the duration of the term, and losses up to the total loss of capital are possible. You can find the fund documentation and the Key Information Document (KID) in the NAO app.

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