By Peter Kim, CFA®
For most of investing history, the conversation about building wealth was a relatively straightforward one. Stocks for growth. Bonds for income and stability. Maybe some cash for liquidity. Rebalance periodically and stay the course.
That framework still matters. But for high-net-worth investors, it no longer tells the whole story.
Over the past two decades, a broader set of investment options has become meaningfully accessible to families with significant wealth; private equity, real estate, and credit. These are the categories that institutional investors such as university endowments, pension funds, and large family offices have used for years to build more resilient, better-performing portfolios over long time horizons.
The question for individual investors is not whether these categories exist. It is whether they make sense in your specific situation, how much complexity and illiquidity you can reasonably absorb, and how they fit into the broader context of your financial plan.
At Brandywine Oak Private Wealth, we are having more of these conversations with clients as the alternatives landscape has become more accessible and more relevant. This article is intended to give you a grounded, clear-eyed introduction to what each of these categories actually is, what it offers, and what to think carefully about before adding it to your portfolio.
Why Alternatives Have Become More Relevant
Traditional portfolios of publicly traded stocks and bonds are subject to public market volatility. When markets sell off broadly, as they did in 2022 when both stocks and bonds declined simultaneously, a portfolio built entirely on those two asset classes can experience significant drawdowns with limited places to hide.
Alternative investments, in general, offer a different return profile. They tend to have lower correlation to public market movements, meaning they do not always move in the same direction at the same time as stocks and bonds. They can also offer access to return sources that simply are not available in public markets, particularly in private equity and private credit where the investment universe is substantially larger than what is publicly traded.
The tradeoff is complexity, higher minimums, limited liquidity, and a higher level of due diligence. These are not investments that belong in every portfolio or that should be added without a clear understanding of what you are getting.
Private Equity
Private equity is the category that most people have heard of but fewest fully understand. At its core, private equity involves investing in companies that are not publicly traded on a stock exchange.
The most common forms are buyout funds, which acquire established companies with the goal of improving operations and eventually selling them at a profit, and growth equity funds, which invest in companies that are growing and need capital to accelerate. Venture capital, which funds early-stage companies, is technically a subset of private equity as well, though it carries a distinct risk profile.
For investors, private equity is typically accessed through a fund structure. You commit capital to the fund, which is then called and invested over a period of several years. Returns are realized when the fund's portfolio companies are sold, which typically occurs over a seven to ten year horizon.
The potential return advantage of private equity comes from several sources: access to companies at valuations that are not publicly available, the ability to influence operations and strategy as an owner, and the illiquidity premium that investors earn for accepting that their capital is not available on demand.
The risks are real as well. Some funds are better than others, and manager selection is extremely important. Capital can be locked up for years. And because valuations are not marked to market daily, it can be difficult to assess how a private equity investment is performing in real time.
For families with a long enough time horizon and sufficient liquid assets outside of the private equity allocation, it can be a meaningful addition to a diversified portfolio. For families where liquidity needs are less certain, the commitment requires more careful evaluation.
Real Estate
Real estate as an investment category is broad, and how you access it matters as much as whether you access it.
Direct ownership of investment property, whether residential or commercial, is the most familiar form. It can generate income and appreciation, but it also requires active management, creates concentration in a specific geography, and involves transaction costs and illiquidity that limit flexibility.
For investors seeking real estate exposure without the operational complexity of direct ownership, several alternatives exist.
Real estate investment trusts, or REITs, are most commonly publicly traded companies that own and operate income-producing properties. They offer liquidity, diversification across property types and geographies, and dividend income, but they also trade in public markets and can exhibit volatility that closely tracks stock market movements.
Private real estate funds offer a middle ground: exposure to a diversified portfolio of properties, professional management, and return characteristics that are less correlated to public markets, but with the illiquidity and longer time horizons that come with private structures.
Real estate can serve multiple roles in a portfolio. It can generate consistent income. It can provide a degree of inflation protection, as property values and rents have historically moved with inflation over time. And it can offer diversification from the volatility of public equity markets.
The considerations include concentration risk if real estate already represents a significant portion of your net worth through a primary residence or other holdings, liquidity constraints in private structures, and the importance of evaluating specific investments or funds carefully rather than treating real estate as a monolithic category.
Private Credit
Private credit is perhaps the least familiar of the three categories for most investors, but it has grown substantially as an asset class and is worth understanding.
Private credit involves lending to companies or projects outside of the traditional banking system and public bond markets. The borrowers are typically businesses that need capital but do not fit the profile required for public debt markets. Private credit funds provide that capital in exchange for interest income and fees.
Because private credit occupies a different part of the lending market, the interest rates it commands are generally higher than what you would earn from investment-grade public bonds. The category has also attracted attention in recent years as interest rates rose broadly, because private credit loans are often structured with floating interest rates that adjust with the market, providing a degree of protection against the kind of bond price declines that occurred in 2022.
The risks in private credit center on credit quality and liquidity. From a credit quality standpoint, the risk can be similar to the risk of the public credit market depending on the size and balance sheet of the company. If economic conditions deteriorate, defaults can increase. And as with private equity, the capital committed is not readily available on demand.
For investors seeking income with a return premium above traditional fixed income, and who have the liquidity and time horizon to accommodate the lockup, private credit can play a useful role as part of a diversified income strategy.
How Alternatives Fit Into a Comprehensive Wealth Plan
The most important thing to understand about alternatives is that they are not a separate conversation from your overall financial plan. They are a part of it, and they only make sense when evaluated in that context.
Before adding any alternative investment, the right questions are: How much of your total portfolio can you afford to have illiquid? What is your time horizon for each portion of your assets? What role is the alternative investment intended to play: return enhancement, income generation, or diversification? And is the specific fund or manager you are evaluating a high-quality one?
At Brandywine Oak Private Wealth, we do not approach alternatives as a category to fill in a portfolio for its own sake. We evaluate each opportunity in the context of a client's full financial picture, their liquidity needs, their tax situation, and their goals. We also have access to institutional-quality managers and structures that may not be available through a standard brokerage relationship.
If you have been curious about alternatives and private market investments might fit into your portfolio and your broader financial plan, we would welcome that conversation. Call (484) 785-0050, email contact@BrandywineOak.com, or schedule a meeting online at brandywineoak.com/get-started. You can also visit our client testimonials page to hear how we have helped other families build more thoughtfully diversified portfolios.
Frequently Asked Questions About Alternative Investments
Are alternative investments appropriate for all high-net-worth investors?
Not automatically. While alternatives can offer meaningful benefits including diversification, income, and access to private market returns, they also involve illiquidity, complexity, and higher minimums that make them appropriate only in the right circumstances. The key factors are your time horizon, how much of your portfolio can be illiquid without affecting your financial flexibility, and whether the specific investment under consideration makes sense. At Brandywine Oak Private Wealth in Kennett Square, PA, we evaluate alternatives in the context of each client's full financial picture before making any recommendation.
How much of my portfolio should be in alternative investments?
There is no universal answer, but institutional investors such as university endowments and large family offices have historically allocated 20% to 40% or more of their portfolios to alternatives. For individual investors, a more modest allocation, often in the range of 10% to 20% of investable assets, is a reasonable starting point, with adjustments based on liquidity needs, time horizon, and the specific categories being considered. The illiquid portion of any portfolio should be sized conservatively relative to your overall financial situation.
What is the minimum investment typically required for private equity or private credit?
Minimums vary by fund and structure. Institutional private equity and private credit funds often have minimums of $250,000 to $1 million or more per commitment. Some newer fund structures and feeder vehicles have reduced minimums to $25,000 or $50,000, making access easier for a broader range of investors. Regardless of the minimum, the more important consideration is whether the investment makes sense relative to your overall portfolio and liquidity picture.
How do I evaluate the quality of an alternative investment manager?
Manager selection is one of the most important variables in alternative investing. The dispersion of returns between top-quartile and bottom-quartile managers in private equity, for example, is substantially wider than in public markets, which means picking the right manager matters considerably more. Key factors to evaluate include the team's track record across multiple fund cycles, the consistency of their investment strategy, the quality of their portfolio companies or borrowers, their approach to risk management, and the alignment of their incentives with investors. Working with an advisor who has access to institutional-quality due diligence and established manager relationships is one of the most practical ways to navigate this.
How are alternative investments taxed?
The tax treatment of alternatives varies by structure and category. Private equity returns are often characterized as long-term capital gains, which are taxed at favorable rates relative to ordinary income. Private credit income is typically taxed as ordinary income. Real estate investments can involve depreciation deductions that affect the tax profile of income distributions. Many private fund structures issue K-1 tax forms rather than 1099s, which can add complexity to tax preparation. Given the tax implications, coordinating alternatives investments with your overall tax strategy is important, and it is one reason we involve our in-house CPAs in these conversations at Brandywine Oak.
About Peter
Peter Kim, CFA®, brings over fifteen years of experience in investment management, portfolio strategy and design, and investment oversight and due diligence. He oversees the portfolio strategies and investments.
Prior to joining Brandywine Oak Private Wealth, he was a Vice President at Goldman Sachs working in both the investment management team and a multi-family office specializing in advanced planning and investment management for ultra-high net worth families and institutions. Peter holds the Chartered Financial Analyst designation.
Peter lives in Chester Springs with his wife, Rachel, and their three sons, Ryder, Declan, and Cash.
Brandywine Oak Private Wealth is a registered investment adviser. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
