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Alternative Investments: A Year in Review

February 16, 2024

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2023 Insights: A Recap of Last Year's Alternative Investments

We drafted this blog post at the end of 2023, and are just now posting this to the website.

Diversifying investment portfolios beyond traditional assets like stocks, bonds, and cash has become increasingly attractive. This has led to a surge in interest in alternative investments. Alternative investments refer to asset classes beyond the traditional options of stocks, bonds, and cash. Alternative investments are also commonly known as alternative assets since a key feature that distinguishes alternative investments is their lack of liquidity - they cannot be readily sold or converted to cash.

Types of Alternative Investments

Alternative investments are one of the most dynamic asset classes. They encompass a diverse array of investments with unique characteristics. According to the Harvard Business School Online, these are the 7 types of alternative investments everyone should know about:

  • Private equity involves investments in private, non-listed companies through vehicles like venture capital, growth capital, and buyouts. Beyond capital, PE firms provide expertise, talent assistance, and mentorship.

  • Private debt refers to non-bank, non-publicly traded debt investments used by companies to raise capital. Private debt funds profit via interest and principal repayment.

  • Hedge funds employ various strategies to earn high returns on liquid assets, accessible only to institutional and high-net-worth investors.

  • Real estate is the world's largest asset class with bond-like cash flow and equity-like appreciation potential. Valuation methods like capitalization, discounted cash flow, and comparable sales have tradeoffs.

  • Commodities such as oil, gas, metals, and agriculture hedge inflation as their value follows supply/demand, not public markets. Commodities have been traded for centuries.

  • Collectibles such as art, cars, wine, and cards are physical items bought hoping for appreciation over time. Major risks include high costs and improper storage. Expertise is key.

  • Structured products combine fixed income and derivatives to offer customized investments. They grew pre-2008 crisis but caused huge losses when housing declined.

Overview of Alternative Investments in 2023

Here’s a quick overview of some of the biggest alternative investments last year.

In 2023, the private equity sector faced challenges, including the impact of rising interest rates that complicated risk pricing and debt financing. This led to a slowdown in deal and exit activities, as well as a stagnation in fundraising after years of growth, as reported by AlterDomus. Pitchbook data highlighted that despite macroeconomic uncertainties, large managers overseeing funds of $5 billion or more dominated fundraising, leaving limited capital for smaller initiatives. All managers encountered fundraising difficulties, with heightened due diligence and delayed commitments extending the timeline from initial to final close.

For many LPs, secondaries become a valuable instrument for proactively overseeing and adjusting their investment portfolios. The significance of secondary sales among LPs becomes even more pronounced during economic downturns when liquidity demands increase. Some allocators may find it challenging to navigate adverse conditions, prompting them to divest stakes more rapidly than they would in more stable circumstances. According to Moonfare, amidst the private market correction in 2023, the proportion of LP-led transactions expanded to 58% of the total secondary market volume, marking a 10-percentage-point increase compared to the notably more favorable conditions in 2021. Despite these challenges, private equity demonstrated adaptability and creativity in navigating this challenging period.

Simultaneously, private debt emerged as a standout alternative asset in 2023, offering consistent returns and gaining market share from banks and syndicated loans, even amid rising rates that impacted syndicated markets and triggered a regional banking crisis. Private debt became the preferred financing option due to its flexibility, speed, and reduced syndication risk, with substantial available capital.

Pitchbook forecasts indicated that private debt fundraising was poised to surpass $200 billion for the fourth consecutive year, with a projected 10% increase in 2023, driven by steady risk-adjusted returns in a rising rate environment. As of July 28, 2023, the closure of the three largest vehicles indicated a shift towards mezzanine or special situations strategies, reflecting an increasing interest in riskier investments with the potential for higher returns, as reported by Pitchbook. Despite private debt's significant growth since 2010, as noted by Preqin and cited by AlterDomus, its growth story may just be starting, contingent on how managers navigate portfolio distress after a robust 2023.

Conversely, real assets in 2023, including real estate and infrastructure, experienced the adverse effects of rising interest rates and higher financing costs, leading to depressed valuations, decreased deal flow, and a decline in fundraising. Capital raising for real estate and infrastructure dropped by 38% and reached 10+ year lows, respectively, as reported by PERE and cited by AlterDomus. In response, managers focused on operational streamlining, with real estate firms transitioning to fully outsourced or hybrid models to reduce costs. Notably, major players like Brookfield still secured robust fundraising, raising a record $28 billion infrastructure fund, highlighting investor trust in seasoned managers capable of delivering inflation-indexed returns.

Outlook for the Future

As per JP Morgan, attractive valuations, tailwinds, fundamentals, and a weaker dollar could benefit U.S. investors diversifying overseas. International equities saw impressive gains in 2023, with the MSCI All-Country World Index up over 10%. For instance, Japanese equities rose around 16% as interest rates and governance reforms generated enthusiasm. Indian equities gained over 16% on promising fiscal reforms and economic momentum. European markets also performed well as negative rates ended and energy concerns stabilized.

Meanwhile, alternatives like real assets and private equity can provide low correlation, income, and enhanced returns vs. public markets. Real assets offer lower correlation and income but lower total returns. Private equity offers higher returns but more correlation and little income.


The landscape of alternative investments in 2023 reflects an interplay of challenges and opportunities. As investors increasingly explore avenues beyond traditional assets, alternative investments showcase dynamism and unique attributes.

Many things make more sense when viewed in retrospect. Considering the ripple effect of the pandemic, AI trends, geopolitical developments, inflation, and other factors, may be crucial to gaining insights and making decisions today. Forecasts and predictions are partly based on historical trajectories but also on current patterns. Staying informed and adaptable will be crucial for navigating future opportunities and challenges in the dynamic world of alternative investments.


Investor Spotlight

Khosla Ventures focuses its investments on companies that exhibit boldness, operate in the early stages of development, and have a substantial impact. Established in 2004 by Vinod Khosla, a co-founder of Sun Microsystems, the firm is headquartered in Menlo Park, California, and dedicates itself to providing venture assistance to entrepreneurs across various sectors, including AI, sustainability, enterprise, consumer, health, and frontier technologies.

Backed by an extensive network of industry experts and a profound comprehension of market dynamics, Khosla Ventures offers more than just financial backing; it provides strategic counsel, mentorship, and access to invaluable resources. Through the cultivation and support of forward-thinking entrepreneurs, Khosla Ventures assumes a pivotal role in shaping the trajectory of technology and sustainable solutions, solidifying its position as a prominent force in the venture capital arena.

Their support is directed toward ventures that embody any of the following characteristics:

  • Significance in innovation, encompassing either technology or business model, or both.

  • Unconventional approaches to technology, exploration of new markets, or contrarian strategies within existing markets.

  • Possession of "Black swan" ideas.

  • Lack of intimidation by large markets.

  • Engagement in ventures characterized by short innovation cycles.

It's noteworthy that Khosla Ventures emphasizes company building over seeking immediate ROI. From their perspective, ROI naturally follows the process of building robust and successful companies.

Known for its daring and unconventional methods, Khosla Ventures is distinguished for its investments in companies that actively challenge the limits of innovation. Among their notable successes are investments in DoorDash, Instacart, Affirm, and Impossible Foods.

Learn more about Khosla Ventures here.


Next Global Destination - India

A Recap of India: Poised for Growth Through Domestic and Foreign Investments

India's economy is on an upward trajectory, projected to be one of the fastest-growing economies globally. With a GDP of USD 2.59 trillion in 2020, India is now the world's fifth-largest economy according to Asialink Business. As per IBEF, domestic consumption and investments account for 70% of economic activity, indicating India's growth is primarily driven by internal demand. 

As India recovers from the pandemic, investments across sectors are increasing. India's large, young population provides a skilled, strong workforce and opportunities for investors. Domestic and foreign investments work together to facilitate India's development - foreign investors provide cutting-edge technology while domestic investors offer insights into local conditions.

India attracted USD 24.1 billion in tech VC investments in 2022, ranking 4th globally. New investments accounted for 50% of VC deals, pointing to a robust VC-PE pipeline. PE/VC funds invested USD 6 billion across 139 deals in India in Q3 2023 alone. 

SMEs are also benefiting from increased access to capital. 130 SME IPOs raised USD 426 million till October 2023. With 115 unicorns worth over USD 350 billion, India has the third-largest unicorn base globally

Policies are supporting investments - FDI reforms, ease of doing business initiatives, R&D incentives, digital infrastructure development, and more. Combined with India's skilled workforce and domestic demand, these policies are creating an attractive environment for investors.

India's growth trajectory looks positive as domestic and foreign investments increase. For investors and companies, India offers significant opportunities across sectors to tap into the country's economic expansion.


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