How Alternative Investments Can Enhance Your Portfolio

For decades, investors using a traditional 60/40 strategy — with 60% of a portfolio invested in equities and the other 40% in fixed income — generated strong returns. Recent market volatility and higher interest rates have made it more difficult to achieve desired outcomes through public equities and fixed income alone. Savvy investors are turning to alternative investments to build more durable portfolios — and unlock greater wealth potential.

Considering Alternative Investments

According to Andrew Schuler, investment managing director at PNC Private Bank, it’s crucial to look at the full picture of your current portfolio and long-term goals when evaluating potential alternative investments. “The right approach depends on how much capital your want to allocate, the composition of your existing assets and your overall risk profile,” he said. “Whether you are building wealth, growing it to leave a legacy for your family or managing the drawdown of wealth in retirement, alternatives can play a tailored, strategic role. They tend to work best when integrated thoughtfully into a broader financial plan.”

Investors may often use alternative investments to:

Diversify portfolios: low or negative correlation to traditional assets, alternatives can reduce exposure and vulnerability to market volatility.
Access private markets: Opportunities include venture capital for private startups and direct investment in more mature companies not available on public stock exchanges.
Enhance risk-adjusted returns: Alternatives can improve returns while potentially limiting downside risks — outperforming traditional-only portfolios over time.

When added to a portfolio with traditional assets, alternative investments may lower portfolio volatility and enhance returns.

Source: PNC Capital Market Assumptions, Windham Portfolio Advisor, 2024.¹

View accessible version of this chart.

What are Accredited Investors and Qualified Purchasers?

Both must meet criteria from the U.S. Securities and Exchange (SEC) Commission. Accredited investors are defined by annual income and net worth while qualified purchasers are defined based on how much money they have invested. In addition to other criteria, an individual accredited investor must have net worth over $1 million or a minimum income over $200,000. Qualified purchasers that are individuals must have $5 million invested. Most qualified purchasers are also accredited investors.

Common Types of Alternative Investments

Alternative investments span a broad range of asset classes and strategies outside of publicly traded equities and fixed income securities. They are generally available only to certain accredited investors and qualified purchasers and may require longer holding periods and higher risk tolerance —yet they open the door to differentiated, often higher-return opportunities.

	Private Equity	Private Credit	Hedge Funds
How It Works	Invest in companies not traded on public markets	Loan funds to private companies	Investment vehicles with securities and derivative positions to generate absolute returns
Examples	Venture capital, capital growth equity, buyouts	Direct lending, mezzanine debt, distressed debt	Event-driven, relative value, macro, equity hedge
Benefits	High return potential, exposure to growth companies	High yield potential, consistent income, diversification	High return potential, diversification, downside protection in volatile markets
Risks	Illiquidity, high fees, less transparency than public markets	Illiquidity, credit risk, potential borrower default	Complexity, high fees, limited transparency, high cost of entry
Ideal For	Those with large cash and liquid investments seeking long-term returns through direct company ownership	Those with large cash and liquid investments looking for income and diversification beyond public credit markets	Those with large cash and liquid investments seeking risk-managed, uncorrelated returns in volatile markets

	Real Estate	Infrastructure	Cryptocurrency
How It Works	Ownership interest in physical assets (equity) or earning interest from loans made to real estate owners (credit)	Provide capital to build, acquire, or upgrade physical assets that support utilities, communication, roads, etc.	Digital currency that enables transactions without banking intermediaries
Examples	Direct property ownership, Real Estate Investment Trusts (REITs), real estate crowdfunding	Infrastructure Exchange Traded funds, Yield Companies, specialized REITs	Bitcoin ETFs, direct cryptocurrency holdings, blockchain-focused equity ETFs
Benefits	Rental or interest income, capital appreciation, inflation hedging	Stable, long-term cash flows, capital growth potential, inflation protection	High return potential, diversification
Risks	Illiquidity, higher upfront costs, valuation challenges	Extended illiquidity, regulatory shifts, budget overruns	High price volatility, regulatory uncertainty, technology vulnerabilities
Ideal For	A variety of investors interested in gaining cash flow through rental income	Those with large cash and liquid investments seeking predictable return on investment	Those without many liquid assets but want to explore diversification and quick ROI

Are Alternatives Right for You?

Alternative investments aren’t one-size-fits-all. They are best suited for individuals with the capacity — and willingness — to invest for the long term, tolerate less liquidity and evaluate opportunities through a sophisticated lens.

“The key with alternatives is thoughtful integration,” Schuler said. “It’s not about chasing yield or trends, but about identifying where these strategies can fill specific gaps like risk reduction, income generation or accessing nontraditional return streams.”

While alternatives can enhance a portfolio’s long-term return when part of an overall investment strategy, they may not be right for everyone. Investors should speak to an advisor to understand what investments are right for their goals and risk profile.

For more information on alternatives and other investment opportunities, talk to your PNC Private Bank Advisor.

TEXT VERSION OF CHARTS

View image of chart 1

Return and Risk Trade-off With and Without Alternatives. This scatter plot compares the expected 10-year return versus expected risk (measured as a standard deviation) for portfolios with and without alternative investments. The x-axis represents the 10-Year Expected Risk (Standard Deviation), ranging from 5.00% to 17.00%. The y-axis represents the 10-Year Expected Return, ranging from 4.00% to 9.00%. Each data point represents a different asset allocation scenario, grouped into two categories: portfolios without alternative investments, and those with 20% allocated to alternative investments. The chart shows that for a given level of risk, portfolios with 20% alternatives consistently offer higher expected returns compared to portfolios with traditional sets only. The line connecting each category of dots slopes upward from left to right, illustrating that higher risk levels are associated with higher expected returns in both cases. At lower risk levels, a traditional po

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Important Legal Disclosures and Information

Source: PNC 2024 Capital Market Assumptions, Windham Portfolio Advisor. Equity Portfolio represents a 100% allocation to a domestic equity portfolio (S&P 500 Index), Fixed Income Portfolio represents a 100% allocation to a core bond portfolio (Bloomberg U.S. Aggregate Bond Index), and an Alternative Investments portfolio represents a 50% allocation to a private equity portfolio (Burgiss Global Private Equity ex-Venture Capital Funds), 12.5% allocation to a private debt portfolio (Burgiss Global Private Debt Funds), 12.5% allocation to a private real estate portfolio (Burgiss Global Real Estate Funds) and a 25% allocation to a hedge fund portfolio (HFRI Fund of Funds Composite Index). Asset class projections are based on the PNC 2024 Capital Market Assumptions. For additional information please see PNC 2024 Capital Market Assumptions in the Appendix. The above information is for illustrative purposes only. Future results are not promises or estimates of actual results and should not be relied upon. Results have inherent limitations because they are not based on actual transactions, and hypothetical results may under or overcompensate for the impact of certain economic and market factors, all of which can adversely affect results. See important disclosure regarding hypothetical performance here.

This material is for informational purposes only and is intended to be used as a basis for further discussions with PNC Bank, National Association (“PNC Bank”) investment professionals and your legal, accounting and other financial advisors. Nothing in this material is or should be construed as an offer or recommendation to buy or sell any security or adopt any particular investment asset allocation or strategy. Diversification does not assure a profit nor protect against loss. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

All data, facts, assumptions, opinions and analysis provided herein are as of the date of this material (or other stated date) and are subject to change without notice. PNC Bank assumes no responsibility to review or update this material or any data, facts, assumptions, opinions, analysis or other information provided herein.

This material was prepared using proprietary and third party data and software. PNC Bank makes no representation or warranty of any kind, express or implied, regarding the timeliness, accuracy or completeness of such data and assumes no liability for damages resulting from or arising out of the use of such data or software. All such data is provided on an “as is” basis. PNC Bank assumes no obligation to verify or update such data. The imprecision of such data, malfunctions of software or other technology and programming inaccuracies could compromise the accuracy of this report.

This material is the intellectual property of PNC Bank. You may not disclose, reproduce or publish this material in whole or in part or use it for any other purpose without the express written consent of PNC Bank.

Returns and other measures of performance represent past performance. Past performance is no guarantee of future results, and investments may lose money. Carefully consider relevant investment objectives, risks associated with a particular investment strategy as wells as applicable charges and expenses before making any investment decision.

This material is not prepared with respect to the specific investment objectives, financial situation, or particular needs of any specific person. Use of this material is dependent upon the judgment and analysis applied by duly authorized investment professional who consider your individual account circumstances.

Important Disclosure Regarding Hypothetical Performance. References in this material to future, projected or expected returns are not promises or estimates of actual returns PNC Bank may achieve, are for illustrative purposes only and are not to be relied upon as advice or interpreted as an investment recommendation. Further, forecasts are hypothetical in nature and based on the assumptions stated in this material. Forecasts have inherent limitations because trades have not actually been executed. Forecasts results may under or over compensate for the impact of certain economic and market factors that would impact a manager’s investment decision, all of which can adversely affect trading results.

Alternative Investments. Alternative investments involve significant risks, including a partial or total loss of invested funds, and you should not invest in such investments unless you have fully understood all such risks and have independently determined that such transactions are appropriate. Alternative investments are typically not registered with any regulatory authority and are not subject to the same accounting and disclosure requirements as a registered investment. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of the risks that are mentioned. You should neither construe any of the material contained herein as business, financial, investment, hedging, trading, legal, regulatory, tax, or accounting advice. You are encouraged to consult your PNC account representative and/or other business advisor, attorney, and tax and accounting advisors concerning any contemplated transactions in alternative

Indices or Benchmarks. Indices are unmanaged, are not available for direct investment, and are not subject to management fees, transaction costs or other types of expenses that an account may incur. Indices performance results do not represent, and are not necessarily indicative of, the results that may be achieved in accounts investing in the corresponding investment strategy; actual account returns may vary significantly. For definitions of Indices/Benchmarks used in this material, please refer to www.pnc.com/indexdefinitions.

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