Alternative investments were in demand among family offices in 2024, with many making allocations to hedge funds, private credit, private debt and private equity. They sought the classic benefits of alternatives, mainly increased diversification and the possibility of higher returns.
In Canada, 1 to 2 per cent of all wealth channels are allocated to alternatives, says Toronto-based Claire Van Wyk-Allan of the Alternative Investment Management Association, where she is managing director, head of Canada and investor engagement for the Americas. AIMA is a global association for hedge funds, private credit and digital assets.
“Within that, some family offices allocate 30 to 50 per cent to alternatives, with 16 per cent to hedge funds, 10 per cent to private credit and 24 per cent to private equity,” she adds.
Alternative investment assets under management totaled $16.8 trillion in 2023 and are projected to reach $29.2 trillion by 2029, according to Preqin, a leading provider of alternative asset data.
Alternatives such as real estate, private equity, infrastructure and private debt are projected to outperform public markets in 2025, says Robert Janson, co-CEO and chief investment officer at Westcourt Capital in Toronto. He predicts infrastructure—particularly data centres and power-generating solutions—will be key growth areas.
“It was a robust year for alternatives,” he says. “For 2025, I am rosy on the world of alts.”
Alts faced headwinds in 2024
Not everyone is as bullish.
Alternative investments faced some headwinds this year. It was “another challenging year for private market assets in general,” says Greg Nott, senior vice-president and chief investment officer at Northwood Family Office in Toronto.
“While a modest decline in interest rates in the second half of the year was a welcome development, interest rates remain elevated compared to the pre-2022 time period,” Nott adds.
As a result, the exit environment across private equity remained muted, says Nott. Venture capital is still facing challenges due to excess valuations in 2021, and in private real estate, “higher cap rates continued to pressure valuations lower, especially in the office segment,” he says.
Which alternatives performed well?
Private credit was one of the strongest segments, both in terms of attracting capital as well as generating returns. “We continue to see increasing breadth in private credit beyond direct lending and into asset-based lending opportunities,” Nott says.
Private infrastructure was another bright spot in 2024.
“The macro environment was supportive for infrastructure assets, and the generally more stable enterprise valuations tended to provide downside protection in a more uncertain geopolitical environment,” he adds.
Predictions for 2025
Nott is cautiously optimistic that 2025 will bring an improved private market environment. Interest rates are expected to continue to fall, and he foresees economic growth, especially in the U.S.
“A potentially different approach toward regulations and M&A activity from the incoming U.S. administration all bodes well for a modest rebound in private equity valuations and increased transaction activity,” says Nott.
Private equity and private debt will be the biggest drivers of growth among alternative assets, according to Preqin.
Nott also believes that private real estate has bottomed out and will rally in 2025. “Multi-family residential and industrial warehouses look to be the most attractive sectors,” he adds.
Creativity is the name of the game
Recent geopolitical events could continue to affect markets in the coming year, experts acknowledge. Inflation could re-accelerate in their wake, and central banks may change course and boost interest rates, says Nott.
But that uncertainty highlights the importance of alternative investments for portfolio protection, says Van Wyk-Allan.
“We would imagine that portfolio protection in the form of alternative investments is going to become even more important to avoid the volatility. And generally we continue to see a very rosy outlook as wealth and family office portfolios continue to mimic their institutional investor peers,” she adds.
In the meantime, some advisors are becoming creative in their allocations.
“The world of alts can be real estate, it can be self-storage, it can be farmland, it can be infrastructure,” says Janson. “Instead of trying to pick the next winner, the next Nvidia, go upstream and invest in data centres and power solutions to power those data centres, which all of AI will need,” he says.
Family office advisors need to ask themselves: “Is there a better way to play it?” Janson advises.
Indeed, investment into data centre construction has swelled, according to BlackRock. One of the firm’s recent reports reads: “We remain constructive on the sector and think the rally can extend from here—higher demand, reasonable valuations and lower rates are all likely to provide further tailwinds.”
How about crypto?
Bitcoin played a significant role in the alternative portfolio at Unbiased Portfolio Management, says Yan Li, the Calgary firm’s chief investment officer and portfolio manager.
“We added Bitcoin at a 3-per-cent target weighting in our model portfolios in 2022, and gradually increased to a 5-per-cent target weighting earlier this year in a TSX-listed ETF,” he says.
Li adds that Bitcoin, a relatively new asset with high price volatility, performed well in 2023 and 2024. “Despite the past drawdowns, it has made new highs,” he says, adding it requires a time horizon of five-plus years.
All in all, what family businesses have is plenty of time, Janson says.
“They have the balance sheet and the time horizon to withstand the illiquidity that does come with some alternatives,” he says.
“I think the people who make use of that will reap the benefits.”
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