In a piece for ProfessionalPlanner, Michael Collins lays out some pros and cons of investing in alternatives. Overall, he takes a positive view of the asset class as it can boost returns and diversification. Additionally, it can allow investors to take advantage of short-term market inefficiencies which is more difficult through conventional investing and the most popular assets like stocks, bonds, or real estate.

Alternative investments are seeing strong growth over the last decade due to regulatory changes, and technology leading to increased access for private markets. In 2022, the asset class performed particularly well especially relative to stocks and bonds which were both down double-digits. 

One challenge is that alternative investments come in many different forms. Some examples include short-selling, a long-short portfolio, global macro, event-driven, arbitrage, private equity, venture capital, and private market investing. 

There are some drawbacks to consider. For one, there is less liquidity and transparency especially relative to more popular asset classes. Additionally, many alternative strategies do employ leverage which can be a double-edged sword during periods of economic or monetary stress. Another challenge is that alternative investments typically have higher fees than traditional investments which can erode returns over long periods of time. 

Finsum: Alternative investments are seeing a surge in interest due to their strong performance in 2022 and wariness about the economy and traditional asset classes.