Alternative Investing
I am receiving emails daily from wholesalers trying to sell me the next great alternative investment. Too much money chasing too few opportunities will likely result in subpar returns. Buyer beware!
Richard Ennis’s recent papers, including "The Demise of Alternative Investments" (2025), presents a critical analysis of the role and performance of alternative investments—such as private equity, hedge funds, and private real estate—in institutional portfolios, especially for public pension funds and endowments[1][2][3].
https://richardmennis.com/blog/what-is-the-future-of-alternative-investing
Key Arguments from Ennis’s Research
- High Costs, Ordinary Returns: Ennis argues that alternative investments are extremely costly, with a diverse portfolio of alternatives costing at least 3% to 4% of asset value annually. Institutional expense ratios typically range from 1% to 3%, depending on the allocation to alternatives. Despite these high costs, alternatives have delivered returns similar to traditional equity and fixed income assets, not superior ones[1][2][3].
- Performance Drag Since the Global Financial Crisis: Since the Global Financial Crisis (GFC) of 2008, alternative investments have had a significantly adverse impact on institutional performance. Private real estate and hedge funds, in particular, have underperformed. The so-called “Golden Age” of alternatives (1994–2008) saw strong risk-adjusted returns, but in the post-GFC era, heavy allocations to alternatives have led to consistent underperformance of 1–2% per year relative to simple stock-bond benchmarks[4].
- Agency Problems and Governance Failures: Ennis highlights agency issues and weak governance as factors sustaining the popularity of alternatives. Chief Investment Officers and consultants have incentives to favor complex, high-fee investment programs and can influence the benchmarks used to measure performance. Trustees may even receive bonuses based on performance relative to these potentially biased benchmarks, compounding governance failures[1][2].
- Lack of Diversification Benefit: Ennis’s analysis finds that, contrary to the claims of diversification, alternatives have not provided meaningful diversification benefits in recent years. The returns of large endowment portfolios with heavy alternative allocations are still highly correlated with traditional stock and bond benchmarks[4].
- Long-Term Outlook: Ennis predicts that the dominance of alternative investments in institutional portfolios will gradually fade over the next 10–20 years. He expects institutions will increasingly shift toward low-cost, index-based stock and bond portfolios as the inefficiencies and costs of alternatives become more widely recognized[1][5][2][3].
Notable Quotes and Coverage
“Alternative investments, or alts, cost too much to be a fixture of institutional investing. Alts bring extraordinary costs but ordinary returns—namely, those of the underlying equity and fixed income assets.”[1][2]
Bloomberg summarized Ennis’s thesis as a warning that the current boom in alternative assets is a “costly delusion draining billions from portfolios,” and that the unraveling of this approach is inevitable as data continues to show underperformance and excessive costs[3].
In summary: Richard Ennis’s recent work provides a rigorous critique of alternative investments in institutional portfolios, arguing that their high costs and lackluster returns, combined with agency problems and governance failures, have hurt performance since the financial crisis. He forecasts a gradual but decisive shift away from alternatives toward low-cost, index-based investing in the coming decades[1][2][3][4].
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- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5163511
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5146294
- https://www.bloomberg.com/news/articles/2025-06-03/the-17-trillion-alts-boom-gets-blasted-as-costly-and-wasteful
- https://fwpwealth.com/wp-content/uploads/2020/12/Ennis-Failure-of-the-Endowment-Model.pdf