Why do alternative investments make sense for institutional investors?

Question

Quizplus · Accepted Answer

Alternative investments, such as private equity, real estate, hedge funds, and commodities, tend to have low correlation with traditional investments like stocks and bonds. By adding alternative investments to the portfolio, institutional investors can potentially increase the rate of return while lowering the overall risk or standard deviation of the portfolio. This is because the low correlation can reduce the overall volatility of the portfolio. Therefore, alternative investments make sense for institutional investors who are looking to diversify their portfolios and potentially achieve a better risk-adjusted return.

Why Do Alternative Investments Make Sense for Institutional Investors