Traditional versus alternative assets compared
| Feature | Traditional | Alternative |
|---|---|---|
| Examples | Public stocks, bonds, mutual funds, cash | Private equity, hedge funds, real estate, private credit |
| Liquidity | High -- sell on an exchange same day | Low -- capital locked months to years |
| Regulation | High -- strict SEC public-disclosure rules | Lower -- fewer public reporting requirements |
| Access | Anyone with a brokerage account | Often restricted to accredited investors |
The illiquidity premium: paid to wait
The illiquidity premium is the core trade: you give up the ability to react -- to sell on bad news or rebalance on a whim -- and in exchange the investment must target a higher return than a liquid equivalent. Illiquidity is not safety; it is deferred information plus a constraint you are paid to bear.
The five families of alternative investments
How low correlation cushions a drawdown
Diversification reduces but never eliminates risk
Diversification is a structural claim about return drivers, not a guarantee. In a severe, liquidity-driven crisis even low-correlation assets can fall together as forced sellers raise cash everywhere. The honest framing: alts widen the set of return drivers in a portfolio, which reduces -- but never eliminates -- the chance that everything moves at once.
Why investors hold alts, and what they give up
Alts sit outside stocks, bonds, and cash. You hold them for low-correlation diversification and the illiquidity premium, and you accept restricted access, lighter disclosure, and locked-up capital in return. The five families each have a distinct engine -- the rest of the Oxford Ledge alternatives curriculum works through them one at a time.
Who qualifies as an accredited investor
“Accredited investor” has a precise SEC definition (Regulation D, Rule 501): individual income above $200,000 ($300,000 jointly with a spouse or partner) in each of the last two years with the same expectation this year, OR net worth above $1 million excluding your primary residence, OR certain professional licenses (Series 7, 65, or 82). A separate, higher bar — the “qualified purchaser,” $5 million in investments — gates funds that rely on the 3(c)(7) exemption. These are legal gates on who may be SOLD a private offering, not endorsements that the product suits everyone who clears them.
Why art is a consumption good, not an allocation
Collectibles and art — institutional marketing versus the retail reality. A dedicated module on art as an asset class once lived here and has been retired: for nearly all investors the verdict does not need module length. High transaction costs (buyer's premium, seller's commission, insurance, storage), deep illiquidity (sale cycles measured in months to years), and authentication and provenance risk together make art and collectibles a consumption good you enjoy owning, not a portfolio allocation you underwrite for return. Fractional-ownership platforms and 'art index' marketing dress the category in institutional language; the underlying costs and illiquidity are unchanged.
Sit with the ideas.
An endowment shifts 20% of its portfolio from public stocks into a private-equity fund with a 10-year lock-up. What is the single best economic justification for accepting that lock-up?