Alternative assets have reshaped modern portfolios. Assets under management (AUM) for alternative assets is projected to reach close to $30 trillion by 2029, with private equity projected to double in AUM to $12 trillion by then.
The premise for an allocation into alternative assets rests upon a few key ideas: 1: Diversification, 2: Lower correlations to traditional assets & 3: Enhanced returns of existing portfolios. Building on our previous research that highlights gold as a foundational diversifier within alternative portfolios, we continue the discussion on gold’s interplay with alternative strategies, including the growing role of private credit; said World Gold Council [WGC] in the recently published, The Portfolio Continuum: Rethinking Gold in Alternatives Investing Report.
In the context of, Gold: a complementary asset, the WGC said, the performance of alternative assets depends on several factors, including the deal and exit environment, leverage terms, and the redistribution schedules of Limited Partners (LPs). While their diversification benefits help mitigate portfolio volatility to some extent, they often come with liquidity constraints and valuation challenges, requiring a long-term commitment to fully capture their risk-adjusted return potential.
A typical diversified portfolio optimised using Monte Carlo simulations. Based on historical data of the past 20 years, the simulation indicates that the optimal allocation to gold rests between 5% and 8%. This would have helped improve risk-adjusted returns and reduce volatility. In this simulation, the alternative assets account for about one-quarter of the total portfolio.
We also tested our optimised portfolio under four macroeconomic stress scenarios – equity crash, inflation spike, rate hike shock, and credit spread widening – to evaluate its resilience across distinct sources of systemic risk. While no two investor portfolios are identical, this approach anchors our analysis in real-world dynamics by mapping historical relationships between asset classes and macro stress factors.
These assumptions are based on historical stress periods and market patterns. The simulated portfolio results highlight gold’s potential as a risk mitigator across diverse macro shocks. In every scenario – be it a rate hike, inflation spike, equity crash or credit stress – adding gold reduced the portfolio’s drawdown by 50 to 90 basis points. And while modest, this consistency underscores gold’s role as a portfolio stabiliser, mainly when traditional and alternative assets come under simultaneous pressure.
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