As alternative investments go mainstream, investor education is a must

IN recent years, alternative investments – such as private equity (PE) and hedge funds – have surged into the mainstream financial landscape. Traditionally preferred by large endowments and sovereign funds, these asset classes are increasingly accessible to individual or retail investors. This democratisation promises enhanced diversification, attractive return potential, and risk reduction.

In Asia and Singapore specifically, we have seen a series of new digital offerings putting pressure on banks, which have rushed to embrace this asset class. However, the rapid push to make alternatives widely available to individual investors raises significant concerns about due diligence, risk perception, and investor education.

As the industry embraces innovation, it must balance growth with responsibility to ensure that the benefits do not come at the expense of investor security.

Rise of alternative investments

The famed “Yale model” of asset allocation employs risk seeking and diversification strategies for a long horizon. This allocation approach has been increasingly adopted by institutions and family offices for its ability to offer returns uncorrelated with traditional markets. Singapore’s own GIC has been a pioneer of the “total portfolio approach”, which leans more towards alternative assets.