Alternatives

While nontraded real estate investment trusts (REITs) have faced another challenging year, financial advisors are seeing a rise in sales of alternative investments overall. By August, financial advisors sold $76.6 billion of illiquid alternatives, including nontraded REITs, business development companies (BDCs), interval funds, and private placements. 

 

This amount matches 2023's total, with projections indicating the industry will surpass $115 billion by the end of 2024. Sales of nontraded REITs have notably decreased to $4.2 billion in the first eight months, compared to their peak of over $33 billion in 2022. 

 

However, BDCs have overtaken REITs as the most popular alternative investment sold, with $23.7 billion in sales through August. Blackstone Inc. leads in nontraded REIT and BDC sales this year.


Finsum: There is still an elevated risk premium built into most non-treasury rates right currently but REITs could see a bounce back with that falling soon. 

Bitcoin miners are pivoting to AI due to decreasing profitability in crypto mining. Houston-based Lancium and Denver-based Crusoe Energy Systems announced a multibillion-dollar deal to build a 200-megawatt data center near Abilene, Texas, to cater to AI companies. 

 

This project is the first phase of a 1.2-gigawatt build-out. At full capacity, it will be one of the largest AI data centers globally. The facility aims to utilize renewable energy and Crusoe’s technology to optimize energy usage. 

 

The Abilene center is expected to be operational by 2025, marking a significant shift in energy use and data center strategies.


Finsum: We are really going to see the stresses of energy on alternatives like crypto this year.

Young, wealthy investors (ages 21-43) are gravitating towards alternative assets like hedge funds, private equity, and crypto, with nearly one-third of their portfolios in these categories. 

 

They allocate less than half of their portfolios to traditional stocks and bonds, contrasting with older investors who prefer these conventional investments. This younger generation's investment preferences are shaped by greater access to diverse asset classes and experiences like the financial crisis.

 

 They also hold higher cash allocations for liquidity, despite the potential risks of underinvesting. Diversifying into alternatives comes with unique costs and risks, including higher management fees and illiquidity.


Finsum: The introduction of crypto and many web 3.0 products have really spurned the growth of alts for younger investors.

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