For a financial advisor, interest in alternative assets is growing among clients, especially experienced retail investors. However, these assets can add complexity to their portfolios. Liquidity limits, higher fees, leverage, and specific regulations require guidance and thoughtful planning.
In this article, Wealth Professional will shed light on what alternative assets are, how they work, and how to discuss them with your clients in Canada.
We've also listed the latest news about these assets. If you're interested, you'll find them at the bottom of this page so feel free to scroll all the way down.
An alternative asset is any investment that is not a traditional public stock, bond, or cash product. It covers a wide range of holdings. Instead of only owning listed companies or government bonds, investors use alternative assets to gain exposure to:
Large asset managers in Canada often describe alternatives through three lenses. These are specific assets, strategies that use tools such as derivatives, and investments that sit outside public markets. For a financial advisor, the attraction usually comes down to three ideas:
These benefits come with trade-offs. Many alternative assets are less liquid and charge higher fees. They can also involve longer commitments and need deeper analysis than regular mutual funds or ETFs. Watch this video for more on alternative assets:
Alternative assets have recently become more popular. One survey found that there is also a growing number of financial advisors who are using alternative investments in their clients' portfolios.
Alternative assets cover a large range of investments. Some are used mainly by institutions. Others are now accessible to clients in Canada through public funds and certain private products. Here are three common examples that you are likely to encounter:
Institutional investors hold direct stakes in:
Your clients usually access real estate through real estate investment trusts and private real estate funds. They can also have access via mutual funds or ETFs. These hold diversified baskets of properties or real-estate-related securities.
Infrastructure includes:
These assets often use long-term contracts or regulated pricing, which can support stable cash flows.
Commodities include:
Investors can gain exposure through futures-based funds and commodity producers. In some cases, they can also go for physical holdings.
Different firms group alternatives in different ways. For client conversations, a simple four-part view often works well:
Let's take a closer look at each of these alternative assets:
This group covers funds that invest in private companies across stages, from early-stage ventures to large buyouts. Capital is usually committed for many years. Returns depend on exits such as public offerings or recapitalizations. Canadian pension funds have increased allocations to private equity in recent years as part of a shift toward private markets.
Private credit funds provide loans that are not issued in public bond markets. Strategies include:
Many Canadian institutions hold private credit to seek higher yields and better diversification relative to public bonds. A financial advisor might see these offered through private pools for eligible investors.
This group covers strategies that use short selling and derivatives to manage risk and return in different ways from long-only funds. Examples include:
Liquid alternatives can also bring some of these approaches into mutual funds and ETFs. However, there are Canadian regulations that limit leverage and concentrate on daily liquidity.
Real assets include income-producing real estate and infrastructure projects. It can also include natural resources such as farmland or timberland. These assets attract investors because they are tangible and can provide steady cash flows. Real assets can often show some link to inflation as well.
For your clients, these four types can make alternative assets easier to dissect. You can connect each category to goals such as income and inflation protection within a plan.
There is no single best alternative asset for every client. What works for one situation might be unsuitable for another. For a financial advisor, the more useful question is which alternative investments fit client risk profiles, risk tolerance, time horizon, and liquidity needs.
Even with that caveat, some areas appear frequently in diversified portfolios for clients in Canada:
Real estate and infrastructure vehicles that hold diversified asset pools can provide income and some response to inflation. Large Canadian pension plans hold considerable real estate and infrastructure positions because these assets can deliver stable cash flows over long periods.
There are some private vehicles and public funds that can offer similar exposures. Still, liquidity terms, borrowing, and concentration need close review.
Private credit draws strong institutional interest in Canada because of its yield potential and different risk profile relative to public bonds. Some managers now offer private credit funds to eligible retail investors.
For clients that accept reduced liquidity and more complexity, a carefully chosen private credit strategy can support income goals. However, position size and diversification remain critical.
Liquid alternative mutual funds and ETFs can combine several strategies in one product. They often aim to reduce volatility or protect capital while still participating in market growth.
These funds work within Canadian regulations that govern leverage, short selling, use of derivatives, and exposure to less liquid securities. For investors who value daily trading and simpler reporting, they can be a practical entry point into alternatives.
Some Canadian asset managers provide pooled products that blend several types of alternative assets. These might combine real estate, infrastructure, private credit, and hedge-style strategies in one allocation.
For many clients, a single diversified alternative product is easier to follow than several individual funds. It can also reduce the risk of concentrating too heavily in one niche area.
Remember, in your practice, the "best" can often mean well-researched, suitably sized, transparent on fees, and consistent with the client's overall plan. It rarely means chasing the highest past return in a narrow strategy.
Want to learn more about this type of investment? Check out our Alternative Investments section for more valuable insights!
You might need to look at some of these drawbacks before advising your clients to invest in alternative assets:
Because of these disadvantages, alternative assets are best seen as complements to public markets, not simple replacements. They call for thoughtful sizing and strong due diligence. Plus, you must also conduct an ongoing review.
For newer investors, alternative assets call for caution. Before you recommend them, make sure that your client's portfolio of diversified public equities and high-quality fixed income is already in place. Until that foundation is built, illiquid and complex products can distract from simple habits such as regular saving and rebalancing.
You can also ask whether your clients accept lower liquidity and higher complexity than they face with standard mutual funds, ETFs, and other listed holdings. If they still need to build an emergency fund or save for short-term goals, long-term illiquid funds are rarely appropriate.
Even for longer goals, many investors feel uneasy when values are hard to track, or when redemptions are limited. As such, education can come first while implementation is waiting. Handled this way, alternative assets can support your clients' long-term goals without undermining the simplicity and discipline needed for a successful investment journey.
Flexible savings tools and alternative investments may improve retirement readiness by years
BNY data shows Canadian equities and hedge funds led gains as US stocks lagged in Q1
Two advisors weigh in on their approaches to alternatives, tax & estate planning and how those have set them apart
Manulife CIO weighs in on the question of if positive equity-bond correlations have become structural
Study of affluent Gen Z and Millennial investors finds an appetite for advice, so long as it goes past investment management
Judges highlight some of their own events aimed at promoting alternative assets
How adding alternative assets can help deliver added income, without added risk
Webinar explores strategies to deliver stability, income, and client confidence
Josh Sheluk outlines the merits of moderating volatility in portfolios, argues options strategies aren't worth their trade-offs
American broker-dealer will take a minority stake in the Canadian asset manager
