What Wall Street Doesn’t Want You to Know About Alternative Investments
Alternative investments—private equity, hedge funds, private credit, and real estate—have long been marketed as must-haves for sophisticated investors. They promise diversification, access to exclusive opportunities, and market-beating returns.
But what Wall Street doesn’t want you to ask is: What are you actually paying for? And who really benefits?
The High Cost of Complexity
A 2025 study by Richard Ennis, a respected institutional investment analyst, reveals a stark reality: a well-diversified portfolio of alternatives costs at least 3% to 4% of assets annually in management fees and incentive compensation.
These costs are not just abstract percentages—they represent a significant hurdle that any investment must overcome before generating a net benefit for the investor.
The Performance Reality
Measuring the performance of alternative investments is far from straightforward. Unlike public equities and bonds—where pricing is transparent and continuous—many private strategies rely on manager-provided net asset values (NAVs) that are often lagged by a quarter or more. This creates a delay in recognizing gains or losses and introduces subjectivity into reported returns.
Moreover, the industry commonly reports internal rates of return (IRRs), which, while useful in certain contexts, can obscure the actual timing and consistency of results. IRRs are not directly comparable to the time-weighted returns investors are accustomed to seeing in public market benchmarks.
These nuances don’t necessarily make alternatives a poor choice—but they do call for a higher standard of diligence and a careful understanding of how returns are calculated and what they represent.
The Takeaway for Individual Investors
At Compass Wealth Management, we believe the bar for including alternatives in a portfolio should be high. That’s why our approach focuses on:
Cost efficiency — We steer clear of high-fee, opaque structures and prioritize strategies that do not embed unnecessary expenses.
A high level of customization — Our firm sources alternative strategies such as gold exposure and equity hedging directly from large institutional trading desks. These vehicles typically carry no internal fees or embedded commissions.
By prioritizing transparency, cost efficiency, and direct access to institutional-caliber solutions, Compass Wealth Management is committed to delivering customized alternative investments that enhance our clients’ portfolios and support their long-term financial goals.
Have questions or want to speak with our team directly? Contact us.
Robert Amato, CFP®, CIMA®
Principal
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Compass Wealth Management is a Registered Investment Advisor. Advisory services are only offered to clients or prospective clients where Compass Wealth Management and its representatives are properly licensed or exempt from licensure. This article is solely for informational purposes and is not intended to be relied on as a forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Compass Wealth Management to be reliable, are not necessarily all-inclusive, and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investments involve risks.