Given the risk, alternative investments were once considered only appropriate for the affluent and institutional investors. However, investment firms increasingly are offering alternative investment products, including mutual funds, ETFs, and private equity funds with strategies similar to hedge funds, to less affluent people. While average investors are responding eagerly to the move and forking over billions for alternative offerings, there are critics who argue that nontraditional assets are simply too risky for them. In a news article, Klaas Baks, associate professor in the practice of finance and executive director of the Center for Alternative Investment at Goizueta, offered his support of the investment strategy, while George Papadopoulos, a fee-only wealth manager, cautioned against it. Baks noted that alternative vehicles allow less affluent individuals to diversify their portfolios. Alternative investments also require minimal initial investment. Papadopoulos wrote that the risk and fees, as well as a lack of transparency and liquidity, were reasons to avoid nontraditional assets. In the article, Baks contended that all investments offer some risk but that alternative investments, when used correctly, also provide critical access to leverage.
Klaas Baks Professor in the Practice of Finance; Executive Director, Center for Alternative Investments