Alternative assets for private investors: private equity, timber, real estate beyond the stock market

Your portfolio consists of 80% stock ETFs and 20% bonds. The performance is “okay” – 6-7% p.a. in normal years. But your friend, who invests in private equity with “only” 50% stocks, makes 10-11% p.a. How is that possible? Alternative assets – private equity, timber investments, real estate funds, hedge funds. Yale has 70% in alternatives. The average endowment 28%. This article will show you how private investors can get access without having €100 million.

Why Alternative Assets Work for Yale (and You Too)

Yale has allocated 70% of its portfolio to alternative assets over the last 20 years. This means: 70% of assets in illiquid, complex investments. The average endowment is 28%.

This works because alternative assets offer three critical properties:

• Illiquiditätsprämie: 300-500 bps additional return simply because the money is tied up for 7-10 years.
• Weniger Korrelation zu öffentlichen Märkten: When stocks lose 20%, private equity often only loses 5% because the valuation is not recalculated daily.
• Alpha-Generierung: Managers earn through real business optimization, not just riding market trends.

The four main categories of alternative assets

1. Private equity
Private equity means: You are co-owner of non-listed companies. The PE manager buys a company (e.g. for €50 million), optimizes operations over 5-7 years, and then sells for €100-150 million. Your return: 15-25% p.a. The fee structure: 2% AUM + 20% profit (carry).

2.Timber/Forestry
You invest in forest assets and earn through two sources: (a) Biological growth (wood gets bigger), (b) Selling the wood. Long-term returns: 8-12% p.a. Low correlation to stocks.

3. Real Estate (Income Focus)
Not flipping, but hold-to-let. You buy real estate, earn through renting (4-5% yield) + value appreciation (2-3% p.a.). Total return: 6-8% p.a., but with leverage 8-12% p.a.

4. Hedge Funds / Secondary PE
Hedge funds use more complex strategies (long/short, merger arbitrage). Secondary PE means: You buy existing PE shares at a discount. Returns: 7-12% p.a., volatility: <10%.

How private investors get access to alternatives

The problem: Large PE funds have minimums of €5-10 million. This is a problem for private investors with €2-5 million.

The solution:Fund of funds, funds of funds and secondary market platforms.

• Fund of Funds: A manager invests in 20-30 private equity funds. Minimums: €500K-€2M Fees: +1% (on top of PE fees) but saves you time.
• Dachfonds / Feeder Funds: Similar to Fund of Funds, but usually with better fees (0.5-1%). At least similar.
• Secondary Markets (z.B. VivinQ, Lexington Partners Secondary): You buy existing PE shares at a discount. Minimum often just €250K.
• Timber ETFs & REITs: Simplest option – buy a Timber ETF (e.g. iShares Global Timber & Forestry UCITS ETF). Minimums: as small as you want.

A Practical Portfolio: How to Allocate 50% to Alternatives

Starting point: You have €3 million and currently 80% stocks / 20% bonds.

New portfolio: 50% public markets, 50% alternatives

• €1.5 million Global Equities (ETF, e.g. Vanguard All-World)
• €0.75 million Timber & Forestry (ETF or direct fund)
• €0.75 million private equity (via fund of funds, e.g. Partners Group, VivinQ)
• €0.5 million real estate (real estate investment trust or real estate fund)
• €0.5 million bonds & cash

Expected total return: 8-9% p.a. (vs. 6-7% with 80/20)
Expected volatility: 8-10% (vs. 12-14% with 80/20)
This is the Yale effect: more return, less risk.