Posted By Why I do not recommend them — private or liquid — and what most investors do not fully understand
By Steve Lowrie, CFA
Special to Financial Independence Hub
I am often asked about alternative investments. My first response is always the same: alternative to what?
Because most of what is being presented as “alternative” is not something new or better. It is often the same wine in a different bottle.
I do review alternative strategies, as I look at all types of investment strategies, but from a high-level, evidence-based perspective. Not by spending time on the individual deals and marketing pitches that arrive almost daily.
Let me be direct. Despite the heavy marketing push behind private credit, private equity, liquid alternatives and similar strategies, I do not recommend them. I have not recommended them in the past, and I do not recommend them now.
In my experience, investors in these structures often do not fully understand what they own, how they are priced, when they can access their money, or the underlying risks.
Those are not minor details.
A recent reminder
At a portfolio manager roundtable a few months ago, one advisor shared that more than half of his clients’ assets were invested in private alternative structures. It was presented as a sign of sophistication.
Only a few months later, U.S. press coverage began highlighting private-credit funds facing large redemption requests. In response, many of these funds have been limiting withdrawals or placing restrictions on how much investors can redeem.
Closer to home, several large, well-known Canadian alternative asset managers have recently halted redemptions, leaving investors unable to access their money for extended periods. If you have lived through that, you already know how it feels. If you have not, the experiences of those investors are worth taking seriously before you ever considered investing.
None of this should be surprising. If you invest in illiquid assets, there will be limits on liquidity. The underlying investments, such as private loans or real estate, cannot be sold quickly. That is how the structure is designed.
The concern is that this reality is often lost in how these investments are presented.
When new information becomes available, it should shape how we think about risk.
It raises a more important question. Is this actually improving outcomes for clients, or is it introducing risks that have not yet surfaced?
Concentrating that much of a portfolio in illiquid, opaque investments is not sophistication. It is risk, just not the kind you see right away.
What are alternative or private investments?
Alternative investments are investments that are not publicly traded. They include private credit (lending directly to businesses), private equity (ownership in private companies), direct real estate or infrastructure assets held in pooled structures.
The key difference is not what they invest in, it is how they are structured. These investments vehicles are:
- Not continuously priced
- Not easily sold
- Not fully transparent
The underlying exposures, corporate lending, real estate, business ownership, can all be accessed through public markets. The issue is the structure, not the asset class. I have made this point before in the context of real estate, where publicly traded REITs offer a cleaner path than direct property ownership, and in the context of gold, where exposure already exists indirectly through the broader market.
Why are these strategies being sold so aggressively to individual investors?
The pitch typically centres on three claims: better diversification, lower volatility, and higher expected returns. These claims do not naturally go together. Higher expected returns typically come with higher risk, not less.
There is some historical basis for this, but only in a very specific context, and one that is not usually explained clearly.
What about the endowment model?
A common argument from advisors recommending alternative investments is that large U.S. university endowments, such as those at Harvard, Princeton, and most famously Yale, have used meaningful allocations to private investments for decades and have generated strong long-term returns.
A bit of background: The Yale Endowment, under the late David Swensen, became the most well-known example of what is sometimes called the “endowment model” – a portfolio approach that allocated heavily to private equity, hedge funds, real assets, and other alternatives, rather than to traditional stocks and bonds. The strategy delivered strong results over an extended period, and many other institutions tried to copy it.
That history is real. But two things are worth noting before applying it to an individual investor’s portfolio.
First, those results depended on advantages most individuals cannot replicate: first-look access to the very best private fund managers, negotiated fee structures, multi-decade time horizons that genuinely do not need liquidity, and full-time investment teams to perform deep due diligence.
Second, the asset class itself has changed. As private investments have been packaged for broader distribution, more capital is chasing the same opportunities, the return advantage has narrowed, and the best managers are generally not the ones marketing to retail and mass-affluent investors. Even some of the original endowment-model institutions have been reassessing their allocations.
What has worked well in the past is often difficult to repeat going forward.
In some cases, sophisticated investors are reducing exposure while less experienced investors are being encouraged to step in. Whether intentional or not, that raises an important question. Is this about better investing, or better marketing?
Is the illiquidity a problem?
Yes, it can be.
There is a concept known as the illiquidity premium. If you give up access to your money, you should expect a materially higher return in exchange.
For that trade-off to make sense, two things must be true. You actually receive the higher return, and you fully understand and accept the loss of liquidity.
What we are seeing now raises questions about both. Liquidity rarely feels important until the moment you need it and that is typically when it matters most.
As an example, several large alternative asset managers, including in Canada, have had to limit withdrawals, delay redemptions, or fully gate funds. Gating means you ask for your money back, but you cannot get it on your timeline. You get it at the manager’s discretion. And this often happens at the same time the underlying investments are under pressure, which is usually the reason for the restrictions in the first place.
Why do private investments appear so stable?
Because they are not priced in real time.
Private investments are typically valued periodically, often using models rather than actual transactions. That creates the appearance of smoother returns. But smoother does not mean safer.
Lower reported volatility often reflects how the investment is priced, not what is actually happening underneath.
It often just means changes in value are being reported more slowly.
A recent Dimensional article makes this point clearly. Without continuous pricing, it is difficult to assess the true condition of private credit investments, and publicly traded proxies may provide a more current signal. Exhibit 1 in the Dimensional piece shows that while broad stock and bond markets were positive over the past year, a publicly traded proxy for private credit declined by more than 13 per cent.
That difference is not trivial, and it highlights how private valuations can lag what is happening in real markets.
What about liquid alternatives?
A common response to the liquidity concerns above is: “But what about liquid alternatives, the ones offered as ETFs or mutual funds with daily liquidity?”
These products solve the liquidity problem on the surface. You can buy and sell them like any other fund. But they do not solve the underlying problem with the strategy.
The fees are still high, often well above what you would pay for traditional equity or fixed income exposure. The strategies inside are often complex, opaque, and difficult to evaluate. And the long-term net-of-fees track records of many liquid alt strategies have been weak or negative.
There is also a more subtle issue. When a fund offers daily liquidity for strategies whose underlying instruments are not themselves daily-liquid, the wrapper is promising something the underlying cannot reliably deliver. Under normal conditions, this is not visible. Under stress, it can be.
Changing the wrapper does not change the strategy. If the underlying approach is expensive, complex, and unlikely to add value over time, putting it in a more liquid package does not fix that. It just makes it easier to buy.
So no, I do not recommend liquid alternatives either.
A simple framework for evaluating any investment
When clients ask me about a new investment idea, I encourage them to ask three questions before going further:
- Does it produce a reliable expected return that compensates me for the risk?
- Can I access my money when I need it?
- Can I clearly understand what I own and how it is priced?
Most alternative investments, private or liquid, struggle to meet all three.
There is also a common belief that access to private investments provides an advantage. In reality, broader access often comes after the most attractive opportunities have already been captured.
That does not make them useless in every context. But it does make them difficult to justify as a meaningful holding in a long-term portfolio.
A note for prospective clients
If you are reading this and you have already been pitched an allocation to private credit, private equity, or liquid alternatives, or you have already invested and are now wondering whether you should have, you are not alone.
I have spoken with many investors over the years who came to me after the sales pitch and sometimes after the investment had already been made. The pattern is consistent. The marketing was polished. The numbers looked attractive. The product sounded sophisticated. And then, somewhere down the road, something happened. Returns were not even close to what was promised. A redemption was delayed. A valuation was revised (downward) … the story changed.
If that sounds familiar, the most useful thing you can do is get a second opinion from someone who did not sell you this strategy in the first place.
The Bottom Line
For the vast majority of individual investors, alternative investments, private or liquid, should be avoided.
Because once you strip away the marketing pitch, they are usually expensive, illiquid (or only superficially liquid), opaque, and more complex than they need to be.
Investors are told they offer diversification, stability, and better returns. What they often get is limited access to their money, unclear or delayed pricing, high fees, and risks they do not fully understand.
That is a bad trade-off.
And when things go wrong, they tend to go wrong as you would expect. Underlying assets come under pressure. Concerns rise. Redemptions get limited. Funds get gated. Values come into question. By the time that becomes clear, it is too late.
If you are buying something you cannot clearly value, cannot easily exit, and cannot confidently explain, you are not investing. You are speculating.
That is not a risk I am willing to take with client portfolios. It is simply not how we invest.
Frequently Asked Questions
What are alternative investments?
Alternative investments are investments that are not publicly traded and are typically less liquid, less transparent, and not continuously priced. They may include private credit, private equity, direct real estate, or infrastructure assets held in pooled structures.
Are alternative investments less risky?
No. They may appear less volatile because they are not priced in real time, but that does not mean they are less risky.
Lower reported volatility often reflects how the investment is priced, not what is actually happening underneath.
Why are alternative investments marketed as more stable?
Because their valuations are updated periodically, often using models instead of real transactions. This can make returns appear smoother, even when underlying risks are increasing.
Can I lose access to my money in private investments?
Yes. Many private investment structures include provisions that allow managers to limit withdrawals or gate funds, especially during periods of market stress.
Do alternative investments provide better returns?
Historically, some private investments delivered strong returns, particularly for large institutional investors with access and scale advantages. However, what has worked well in the past is often difficult to repeat going forward.
Should individual investors invest in alternative investments?
In most cases, no. For the vast majority of investors, the added complexity, cost, illiquidity, and lack of transparency outweigh any potential benefit.
Steve Lowrie is a Portfolio Manager with Aligned Capital Partners Inc. (“ACPI”). The opinions expressed are those of the author and not necessarily those of ACPI. This material is provided for general information, and the opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on the information presented, please seek professional financial advice based on your personal circumstances. ACPI is a full-service investment dealer and a member of the Canadian Investor Protection Fund (“CIPF”) and the Canadian Investment Regulatory Organization (“CIRO”). Investment services are provided through ACPI or Lowrie Investments, an approved trade name of ACPI. Only investment-related products and services are offered through ACPI/Lowrie Investments and are covered by the CIPF. This article originally ran on Steve’s blog on April 30, 2026 and is republished on Findependence Hub with permission.
