Alternative Investments in a Family Office Portfolio: A Clear Framework

An alternative investment can be a private asset (like a private company), a physical asset (like real estate), or a strategy that behaves differently than public markets. The label is broad, so it helps to start with concrete categories and examples: private equity, private credit, hedge funds, real assets, structured products, collectibles, and infrastructure are common buckets. If you want a quick orientation with real examples, FundCount’s overview is a good starting point: https://fundcount.com/alternative-investment-examples

Why investors use alternatives

The usual reasons are straightforward:

• Different return drivers. A private loan to a business is driven by interest payments and credit quality, not a stock’s daily price swings.
• Income. Some alternatives, like private credit or certain real estate structures, may generate periodic cash flow.
• Access. Private markets can offer exposure to companies or projects that aren’t publicly traded.
• Risk management (sometimes). Some strategies aim to reduce reliance on a single market regime, though “diversification” isn’t automatic—it depends on the specific asset and how it’s managed.

The trade-offs that matter most

Before allocating, focus on a few practical issues that drive outcomes more than marketing language:

1. Liquidity and timing Public stocks can usually be sold in seconds. Many alternatives can’t. Private funds may have multi-year lockups; real estate may take months to exit; some hedge funds limit redemptions. Make sure the liquidity profile matches the investor’s actual cash needs.
2. Valuation and reporting Private assets are often valued using appraisals, models, or manager estimates. That can be reasonable, but it means reported returns may be smoother than reality. Understand the valuation method, frequency, and who provides the inputs.
3. Fees and incentives Alternatives can layer costs: management fees, performance fees, fund expenses, and transaction charges. Incentives can also encourage risk-taking. Read the fee schedule and compare it to what you’re getting (access, expertise, or true complexity).
4. Operational complexity Capital calls, distributions, side letters, multiple entities, and document-heavy onboarding are common in private markets. If you’re managing on behalf of a family office or multi-entity structure, you’ll want clear workflows and consistent data.
5. Tax and jurisdiction Alternatives may produce K-1s, UBTI, withholding issues, or complex cross-border reporting. Tax impact is often a deciding factor, not an afterthought.

How this fits in a family office context

For family offices, the question usually isn’t “traditional vs alternative” in isolation. It’s how the two work together across goals, time horizons, and entities (trusts, foundations, operating companies, and personal accounts).

A practical way to think about it is to map investments to functions:

• Liquidity sleeve: cash, short-duration fixed income, and other assets meant to fund spending and commitments.
• Core growth sleeve: public equities and diversified funds where transparency and liquidity are priorities.
• Long-term/illiquid sleeve: private equity, venture, private credit, real assets—where the family can truly hold through cycles.

FundCount’s discussion of how family offices blend traditional and alternative investments is a useful reference when you’re structuring that bigger picture: https://fundcount.com/family-office-traditional-and-alternative-investments/

A simple due diligence checklist

If you’re evaluating an alternative investment, pressure-test it with questions that don’t require a sales deck:

• What is the asset, in plain language, and what causes it to make or lose money?
• How and how often is it valued, and what happens in a stressed market?
• What are the lockups, gates, and redemption terms?
• What fees will be paid under average and strong performance?
• What documents and reporting will you receive, and when?
• What are the major risks (credit, leverage, concentration, counterparty, operational)?
• How does it change the portfolio’s liquidity and cash planning?

The bottom line

Alternatives can be useful tools, but they demand clarity. Start with specific examples, not labels. Focus on liquidity, valuation, fees, and operational realities. And in a family office setting, view alternatives as part of a full balance sheet that includes entities, obligations, and long-term intent—not as a separate “bucket” to fill.