• This article explains what alternative investments are and how they enable asset managers to optimize their portfolios.
• The information is aimed at asset managers interested in strategies that go beyond classic publicly traded stocks and bonds.
• FlexFunds offers an asset securitization program that generates liquidity for alternative investments. For more information, do not hesitate to contact our experts.

Alternative investments are gaining increasing prominence in the global financial industry, primarily due to the multiple diversification and portfolio optimization benefits they provide.

What are alternative investments and why are they gaining relevance in complex environments?

Definition and main categories

Alternative investments group assets outside the conventional spectrum of bonds, stocks, or cash.

In general, it refers to a wide variety of vehicles: private capital (private equity and venture capital), hedge funds, infrastructure, real estate assets, commodities, private debt, and even digital assets.

These assets were historically reserved for large institutional investors, but today they are more accessible through specialized funds. Their main appeal lies in diversification: they provide return and risk sources different from public markets.

For this reason, global alternative investments already exceed USD 25 trillion in assets under management today and are projected to reach USD 30 trillion by 2030.

Alternative investments versus conventional investments

Unlike conventional assets, alternatives tend to be less liquid. A private equity fund can invest in non-listed companies with 5- to 10-year time horizons, while a stock is traded daily.

Conventional investments (fixed income and equities) offer immediate liquidity and track market indices, but their return potential can be limited in low-rate environments; in contrast, alternatives typically involve more risk (and higher fees) in pursuit superior risk-adjusted returns.

As PIMCO notes, while cash carries the lowest risk, equities and alternative assets carry higher risk profiles, though they also offer greater long-term appreciation potential.

In practice, alternative assets tend to occupy a middle ground between fixed income and equities in terms of risk-return profile. Their historical behavior reflects a lower correlation with conventional markets, which allows them to be used as a diversification tool, particularly in volatile or low-rate environments.

Alternative investments: Advantages in institutional management

Risk diversification and adjusted return

One of the main advantages of alternatives is their contribution of their own, diversified return streams. When investing in real estate, infrastructure, or private debt, for example, portfolios receive recurring income (rentals, infrastructure dividends, and loan interest) less tied to the fluctuations of the stock market.

Alternative investment vehicles can complement the classic 60/40 portfolio, as they provide income, diversification, and access to structural growth trends. For this reason, they are considered potential alpha generators: in overvalued or highly volatile environments, they contribute to generating returns with low correlation relative to equity markets or public debt.

Access to asset classes with lower correlation

Alternatives provide access to unique asset classes with low correlation to equities and debt. This means their behavior does not strictly follow public market trends.

Investing in a logistics port or power lines (infrastructure) tends to show movements distinct from those of stocks; something similar occurs with commodities or cryptocurrencies compared to classic indices.

The operational and distribution challenges of alternative investments

Liquidity, compliance, and international access

Many of these vehicles are less liquid: private equity or infrastructure funds typically have long investment periods with no daily trading, which makes rapid exit difficult when cash is needed.

Additionally, regulatory compliance is stricter, especially in Latin America, due to the money laundering risks associated with large capital and complex structures.

Private structures in Latin America require more rigorous compliance processes, particularly regarding KYC/AML, due to their operational complexity and regulatory diversity.

International access is another challenge. Local alternative markets tend to be isolated. While managers seek to attract global capital, regulatory and custodian barriers exist.

In Latin America, the adoption of listed vehicles to structure alternative investments remains limited. Although there is progress, the volume of assets in these types of structures still represents a marginal fraction compared to more developed markets. Regulatory differences between countries also make operational standardization and cross-border distribution difficult.

Structural limitations in LATAM markets

Latin America’s particular characteristics compound these challenges. The institutional alternative fund market in the region is very small: it is estimated that Brazil concentrates nearly half of these assets, while the rest of Latin America accounts for just over the other half.

Most countries lack typical listed vehicles (such as ETFs or similar instruments) for alternative assets. This translates into a restricted investor base and difficulties in scaling strategies. Furthermore, regional financial infrastructure lacks interoperability because investment cultures are fragmented and distribution channels tend to be highly local. 

How to structure alternative investments in listed vehicles?

The role of securitization in asset institutionalization

Asset securitization is a key mechanism for bringing alternatives to formal markets. It involves packaging a set of assets (for example, a portfolio of private loans or real estate) and transforming them into tradable securities. This process “makes assets more accessible and international,” according to FlexFunds, a leading company in asset securitization.

Securitization is fundamental to institutionalizing the alternative asset. It allows the incorporation of standardization, transparency, and regulatory oversight elements that attract professional managers.

ETP as a scalable and distributable solution

Exchange-traded products (ETPs) have proven particularly effective for scaling alternative investments.

An ETP is an exchange-traded vehicle (like an ETF) that can track the performance of a specific basket or strategy. By listing an ETP based on alternative assets, continuous trading in regulated markets is achieved, with price transparency and international access.

This greatly enhances distribution flexibility, as managers can adjust the underlying strategy in the ETP (diversify assets, rebalance, etc.) and make the onboarding of new investors simpler. 

FlexFunds as a bridge between alternative assets and global markets

Structuring, listing, and integrated administration

FlexFunds positions itself as a comprehensive provider for bringing alternative assets to international markets. Its model covers the entire process: from the initial review and strategy due diligence to the legal structuring, issuance, and listing of the ETP vehicle.

FlexFunds creates an Irish special purpose vehicle (SPV) that issues the securities. It then obtains a global ISIN code and registers the ETP in Euroclear, facilitating distribution in multiple private banking channels.

At each stage, the FlexFunds program supervises the legal documentation (memorandum, agreements, and contracts), as well as the subsequent corporate and accounting administration.

Benefits for real estate, private debt, and private fund managers

FlexFunds’ offering is particularly suited to managers of tangible and private assets.

For example, real estate fund managers can structure their portfolios through ETPs, which allows them to optimize their international distribution through listed vehicles, with greater operational efficiency and expanded access to institutional markets.

Similarly, private debt managers (corporate loans, mezzanine, etc.) can channel their credit instruments toward capital markets through structured vehicles.

Even private equity or venture capital funds can use listed alternative vehicles to execute co-investment or partial liquidity strategies. 

The concrete benefit for these managers is twofold. First, they improve the liquidity of their strategy, as their assets (previously illiquid) become tradable securities. Second, they significantly expand their investor base. 

To learn more about FlexFunds’ products, do not hesitate to contact our executives. We will be glad to assist you.

Sources:

• https://www.pimco.com/us/en/resources/education/get-to-know-various-types-of-asset-classes
• https://www.flexfunds.com/solutions/alternative-investments-key-to-portfolio-diversification-in-2025/
• https://caia.org/content/december-2024-hitchhikers-guide-alternative-investments-galaxy
• https://www.fundssociety.com/en/opinion/alternative-assets-etps-as-an-option-in-the-face-of-a-potential-recession/
• https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/regional/es/insights/portfolio-insights/images/global-alternatives-outlook-es.pdf
• https://privatebank.jpmorgan.com/latam/en/insights/markets-and-investing/at-mid-year-alternatives-shine-in-a-volatile-market
• https://www.bekafinance.com/learning/inversiones-alternativas-ejemplos
• https://www.latamblocks.com/news/instituciones-controlan-244-mil-millones-de-dolares-en-activos-digitales
• https://gfintegrity.org/press-release/new-gfi-report-finds-private-investment-funds-vulnerable/
• https://www.bbh.com/us/en/insights/investor-services-insights/LatAm-ETFs-finding-a-new-rhythm.html