Diversifying your portfolio: Alternative investments in 2025

Diversification is always a consideration in portfolio design. The idea is simple: by spreading your investments across different assets, you reduce the impact of any one market or holding underperforming. But in 2025, diversification is about more than equities, bonds and property. A growing number of investors are turning to alternative assets to broaden their opportunity set and strengthen long-term resilience.

Alternatives include infrastructure, private equity, philanthropic funds, art, private credit and new forms of real assets. Each offers different characteristics, risks and potential benefits. They don’t replace traditional markets, but when used thoughtfully, they can complement them to create a balanced portfolio.

1. Infrastructure

Infrastructure has become one of the most established forms of alternative investment. Assets such as toll roads, airports, utilities and renewable energy projects generate long-term, predictable cash flows. They are often essential services, which means demand remains steady regardless of market conditions.

For investors, this reliability is highly valuable. Infrastructure assets can help reduce portfolio volatility while providing a source of income. This is particularly important for retirees, who often seek dependable cash flows to fund pension payments.

There is also a strong growth outlook. Governments and private investors are committing billions to infrastructure upgrades, from transport networks to digital connectivity and clean energy. For investors, this means greater access to opportunities that can deliver returns while also aligning with sustainability goals.

Of course, infrastructure carries risks. Projects can face regulatory change, delays or cost overruns. Returns are not guaranteed, but for many investors, infrastructure’s stability makes it a useful anchor within a diversified portfolio.

2. Private equity

Private equity gives investors access to businesses that are not listed on the stock exchange. These might be family-owned companies, high-growth private firms or global enterprises that choose to remain outside public markets.

The appeal lies in both diversification and return potential. Because private equity investments are not priced daily, they can smooth out volatility compared to listed equities. Over the long term, investors often expect to be compensated for giving up liquidity with higher returns.

Liquidity is the key trade-off. Traditional private equity funds typically require investors to lock up capital for five to seven years. This makes them more suitable for high-net-worth investors who don’t need quick access to all their wealth. However, evergreen fund structures are changing the landscape. These funds allow more frequent entry and exit, opening the door for a wider range of investors to participate.

Private equity also spans several strategies. Venture capital focuses on early-stage companies with high growth potential but greater risk. Growth equity invests in businesses looking to scale. Buyout funds often acquire mature businesses, seeking to drive efficiencies and expand profitability. Each strategy carries its own profile and the right fit depends on an investor’s time horizon, risk appetite and overall objectives.

For many investors, private equity provides a way to tap into business growth that isn’t available on the ASX or other public markets. But it is important to balance the potential rewards against the reality of reduced liquidity.

3. Philanthropic investment

Philanthropy has moved from being a separate activity to an integrated part of many wealth strategies. More investors are looking for ways to ensure their wealth reflects their values, and philanthropic funds provide a structured path.

Private ancillary funds (PAFs) are a common vehicle. A PAF allows an investor to establish a pool of capital, invest it across asset classes and distribute a portion each year to eligible charities. The fund continues to grow over time, creating a sustainable giving mechanism.

Philanthropic investing is not about generating financial return for the donor. Instead, it creates a legacy, allowing families to support causes they care about while also instilling values of generosity across generations. The tax benefits can also be significant, making these vehicles appealing from both a financial and emotional perspective.

In 2025, this values-driven approach reflects a wider trend. Investors increasingly want their portfolios to deliver more than profit. For those at the right stage of their wealth journey, philanthropic funds offer a way to create lasting impact alongside financial success.

4. Art

Art has always held a place in wealth planning for collectors and ultra-high-net-worth investors. It combines cultural significance with potential financial appreciation. But art as an investment comes with important caveats.

Unlike infrastructure or private equity, art does not produce income. Its value depends entirely on market demand, the reputation of the artist and broader cultural trends. Prices can rise dramatically for a sought-after piece but can also fall if tastes shift.

In recent years, new ways of investing have made the art market more accessible. For example, some funds buy collections on behalf of investors, while other platforms let people purchase a share in individual works. These options open the door to more participants, but the reality remains the same: art is speculative and best viewed as a passion investment, not a core part of a portfolio.

For investors who love art, it can be an enjoyable and potentially rewarding complement to other investments. But it should be approached with the understanding that its financial role is very different from other alternatives.

5. Private credit

Private credit has grown rapidly in the past decade. Instead of borrowing from a bank, businesses can raise capital through private credit funds. Investors in these funds provide the capital and receive returns in the form of interest payments.

For investors, the appeal is clear. Private credit can deliver yields higher than traditional bonds and provides diversification from listed markets. It is particularly attractive in a low-interest-rate environment, but even as rates have risen, the sector continues to grow.

Private credit strategies vary. Some focus on senior secured loans, which sit at the lower end of the risk spectrum. Others provide mezzanine financing, which carries higher risk but also higher return potential.

As with all debt, credit risk is key. Defaults are possible and investors need to be sure they are being adequately compensated for the risks they take. But when managed well, private credit can add another layer of diversification and income generation.

6. Alternative real assets

The category of real assets has expanded well beyond traditional property. Today, investors are increasingly targeting assets such as data centres, aged care facilities, childcare centres and day surgeries. These sectors are driven by long-term structural shifts, including demographic change and digital transformation.

Data centres, for example, are in growing demand as businesses migrate to the cloud. Healthcare infrastructure is another area of rapid growth, fuelled by ageing populations in Australia and globally. These assets provide investors with access to essential services and the potential for long-term income.

Like other alternatives, they carry risks, including regulation, demand and operational performance. But they highlight how investors can diversify into areas that respond to societal needs and offer exposure to growth outside traditional equities.

Building a sophisticated wealth strategy

The question for investors is not whether alternatives have a place but how they should be used.

For high-net-worth individuals, alternatives provide access to opportunities that were once limited to institutions. With larger portfolios, these investors can accept illiquidity more comfortably, allocating a portion of wealth to private markets while maintaining liquidity elsewhere.

For others, the rise of evergreen funds and managed vehicles has created new entry points. Even so, the same principles apply. Investors need to consider how alternatives fit into their overall objectives, timeframes and liquidity needs.

The most effective approach blends public and private assets. Listed equities and bonds remain important for liquidity and transparency. Alternatives can add depth, resilience and potential return. But they should always be weighed carefully against risks, particularly around liquidity and valuation.

Alternatives beyond 2025

Alternatives are no longer niche. Institutional investors have been increasing allocations for years and this trend is flowing through to individuals. Technology is also making it easier to access alternatives, with digital platforms widening availability.

ESG considerations are another driver. From renewable infrastructure to impact-focused private equity, many alternatives align with the priorities of modern investors. This is particularly true for younger generations, who place greater emphasis on values when making financial decisions.

Global capital flows into alternatives are expected to continue rising, meaning investors who embrace them now are positioning themselves at the forefront of a major structural shift.

For individuals, the challenge is to use alternatives thoughtfully. They require patience, a clear understanding of liquidity trade-offs and careful integration into the broader portfolio. But when managed well, they can play a vital role in creating wealth strategies that are resilient, diverse and aligned with long-term goals.

Alternatives can play a valuable role, but only when they’re aligned with your goals and timeframe. Talk to your Apt adviser about how to build the right balance for your future.