From Crypto to Private Credit, Alts Attract Millennials Flush with Inherited Wealth

Move over, avocado toast and craft lattes. Millennials are into alternative assets now, and these young investors’ affinity for going against the stock-and-bond grain is about to upend the financial markets.

Through 2048, some $124 trillion is expected to change hands via the Great Wealth Transfer, with nearly $100 trillion (81% of all transfers) leaving the wallets of Baby Boomers and older generations, according to a report by Cerulli Associates. Millennials will be pocketing the most of any generation over the next 25 years.

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Generations passing the money management torch to their children isn’t new. But what is new is a booming appetite for assets that haven’t traditionally made up investment portfolios built for long-term saving goals like buying a home or retirement. Bank of America found in 2024 that 72% of high-net-worth investors ages 21 to 43 say it’s no longer possible to achieve above-average investment returns by relying solely on stocks and bonds. Just 28% of people over age 44 thought the same.

Erica Grundza, a certified financial planner at Betterment, one of the popular digital investment platforms born during the post-Great-Recession democratization of financial markets, says alts such as private credit, real estate, digital assets or even directly holding ownership shares of a private company they work for are becoming more popular plays.

“As wealth transfers from one generation to the next, these increases in alternative allocations could meaningfully reshape the alts market. Increasing demand could improve access, drive more product innovation, and reshape the regulatory landscape over time,” Grundza says. “I believe that this is more than a short-term trend, but a structural shift in how the next generation builds wealth.”

Another piece of the puzzle that may have even greater implications on the inclusion of alternatives within portfolios than young investors’ new interests is the growing correlation between stocks and bonds as near-retirees and retirees enter the decumulation phase, where they begin spending some of their accumulated wealth, says Paisley Nardini, head of multi-asset solutions at Simplify Asset Management. Many investors seeking to protect their wealth as they pass it down are channeling money into alternatives to diversify their holdings and insulate them from downturns in individual markets such as equities.

Where there’s demand, supply follows. Alternatives are now more available than ever, with new platforms popping up that provide access to little-known corners of the market, and the popular exchange-traded fund (ETF) wrapper becoming a go-to for providers to offer unique asset exposure. For instance, in 2024, the Securities and Exchange Commission (SEC) made the long-awaited decision to approve spot bitcoin ETFs, opening the floodgates for investors to access crypto as easily as they invest in an S&P 500 index fund.

“Now we have a lot of very exotic, exciting, fun, interesting and unique sources of risk and return,” says Nardini, whose firm was founded in 2020 “to make institutional-grade alternative strategies available to all investors through the low-cost and transparent ETF vehicle,” according to its website. Nearly 1,000 active ETFs were launched last year, soaring past the previous record of 584 in 2024, according to Morningstar.

There’s more to come. Experts at Morgan Stanley recently wrote that alts will probably “continue to become more accessible, with a range of registered funds and evergreen vehicles providing exposure to asset classes such as private equity, private credit and private real estate.”

Some of those new products get a bad rap, and rightly so. The alt space, in general, can pose unique risks, such as liquidity constraints and limited transparency, so advisors say it’s important for investors to be careful with their selections.

“​​One of the biggest challenges in this transfer of wealth is just thinking about how you discern between things that are appropriate and prudent because there’s a lot of shiny, flashy objects out there,” Nardini says.

As product offerings change, so does the need for regulatory protections for investors. In December, the SEC sent out warning letters effectively banning firms from launching products that are meant to deliver as much as three to five times the daily returns of stocks, commodities and cryptocurrencies.

Some industry players also support changing the definition of an accredited investor, one who’s allowed to invest in unregistered, private securities. Currently, the SEC requires individuals to have a net worth over $1 million, income of over $200,000 or meet professional criteria.

Financial services firm Edward Jones, for example, supports expanding the definition to include people working with a qualified professional, such as a financial advisor, to help them evaluate their risk tolerance, goals and time horizon, says Steve Rueschhoff, a principal at the company.

In the coming years, Nardini expects to see a growing number of next-generation investors focusing on ways to access investments through tokenized vehicles. (Tokenization uses blockchain technology to create a digital representation, or a token, of a real asset.)

“That’s going to be a massive part of growth in this industry in the next decade,” Nardini adds. “Next-gen individuals, I think, will really gravitate towards that type of advanced, innovative way of thinking about investing.”

Rueschhoff pointed to the growing emergence of public-private partnerships, in which established asset managers in the public space develop joint ventures with private asset managers. The result, he says, is a packaged product similar to a balanced fund with a mix of public and private investments.

Studies also show that young investors are more interested than their predecessors in environmental, social and governance (ESG) investing, which could mean more money getting funnelled to companies that prioritize climate protection and social justice.

“The money they stand to inherit may give them the ability to pursue these alternative strategies, which generally require a high minimum investment and are limited to qualified investors,” Sarah Norman, head of CIO Sustainable Investing Thought Leadership at Merrill Lynch, said in a recent report. “Sustainable and impact investments can be implemented across all asset classes, equities and fixed income as well as alternative investments. Investors now have significant choice and access in how they integrate sustainability into their portfolios.”

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