Alternative Assets, Alternative Risks: Dangers of Investing in Niche Assets

Welcome to the April 2026 edition of our newsletter!  In this issue, we’ll examine how newly approved asset classes are making their way into the investment accounts of everyday investors, and highlight warning signs of fraud schemes.

Peril and Promise as Alternative Assets Enter Retirement Plans

As we’ve previously noted, rule changes allow more diverse asset classes to be invested into retirement plans, including private equity and private credit vehicles, cryptocurrency, and private real estate ventures.  Each presents an opportunity for higher returns in a market where publicly traded equities are routinely touching all-time highs.  Yet each carries risk, not only from the investment itself but of falling victim to fraud.

In real estate, for example, so-called “hard money” loans often carry higher than normal interest rates and specific terms such as “balloon” payments due at or before maturity.  If these loans are included in a fund in which your clients invest, the risk of default can be higher, and thus the returns could be at risk.  Although many hard money lenders can be smaller, privately-held operations, some public real estate investment trusts and other funds include them in portfolio assets.  Similar publicly traded vehicles, such as business development corporations, offer promises of a high yielding return, which they carry out by lending to riskier businesses and other customers.  Scrutiny of those public filings’ comments about litigation and default risk should be a key part of due diligence, as should an understanding of the backgrounds of key firms’ principals.

In a market with many fully valued opportunities, the hunt is on for the next big thing.  But focusing first on the prize may make you miss the target, so doing your homework as new opportunities emerge is always a wise approach.