The Roles of Alternative Assets

Alternatives are often described simply as “anything outside equities and bonds.” But that definition undersells them. Alternatives span private credit, private equity, hedge funds, infrastructure, commodities, and real assets. They are characterised by lower correlation to traditional markets, meaning they behave differently when stocks and bonds move in tandem.

Crucially, alternatives are designed to do things traditional assets struggle with when used in isolation:

• Diversify risk by drawing returns from independent economic drivers rather than market cycles, thereby lowering overall portfolio beta.
• Generate income through contractual or asset-backed income streams.
• Provide inflation protection, as many are linked to real assets or floating-rate structures.
• Capture long-term premiums by rewarding patience through complexity or illiquidity.

This combination makes alternatives less about being “alternative” and more about being essential to a balanced portfolio in today’s environment.

The conversation around alternatives often risks being clouded by myth or misrepresentation. Too frequently, they are spoken of either as silver bullets promising higher returns without added risk, or as opaque and dangerously complex corners of the market. In reality, they are neither. Understanding what alternatives are not is just as important as grasping what they are.

• First, alternatives are not substitutes for discipline. They do not erase market risk or guarantee superior returns. Private equity, for example, may offer the potential for a return premium, but it also carries equity-like risk. Similarly, private credit can provide stable cash flows, yet remains sensitive to borrower fundamentals, default cycles, and broader economic conditions.

• Second, alternatives are not universally uncorrelated. While many strategies exhibit lower or even negative correlations with equities and bonds, this relationship is not static. During systemic shocks, as seen in 2008 or more recently in 2020, correlations across asset classes can rise sharply. Alternatives can dampen volatility, but they cannot insulate a portfolio entirely from global stress events.

• Third, alternatives are not inherently illiquid or inaccessible. While some, such as private equity funds, require decade-long commitments, others, like certain forms of private credit or listed real assets, offer more regular liquidity windows. What matters is the structure of the vehicle, not the label of “alternative.”

By stripping away these misconceptions, alternatives emerge not as exotic outliers, but as deliberate tools for improving portfolio robustness when inflation, correlation creep, and global volatility strain traditional allocations.

The appeal of alternatives lies in the functional roles they play within a portfolio, roles that complement rather than compete with traditional equities and bonds:

• Diversification: Alternatives behave differently from equities and bonds, reducing overall portfolio correlation and smoothing outcomes in stress events.
• Resilient returns: Certain alternatives, like private credit, deliver steady cash flows linked to contractual or legislated obligations, rather than market sentiment.
• Inflation alignment: Real assets and floating-rate credit structures can provide a natural hedge against rising prices, protecting purchasing power.
• Behavioural support: Perhaps less obvious, but equally important, is the role alternatives play in curbing poor investor behaviour. Illiquidity, often seen as a disadvantage, can serve as a structural guardrail, discouraging panic selling and reinforcing long-term commitment.

Together, these roles illustrate that alternatives are versatile instruments that can add return, stability, resilience, or inflation hedging, depending on how they are used. The question is not whether they add value, but which role they need to play in your portfolio.

The distinction between traditional and alternative assets is not about which is “better,” but about what each is designed to do. Equities and bonds deliver immediacy, transparency, and wide accessibility. Alternatives, by contrast, are about structure, patience, and exposure to return drivers that public markets cannot easily replicate.

This recognition sets the stage for the most practical question of all,  how to access these opportunities in a way that is transparent, disciplined, and tailored.

Globally, alternatives are often gated, private equity funds with multi-year horizons, hedge funds with high minimum requirements, infrastructure funds often only available only to institutions. For many, the path to these strategies has seemed distant, inaccessible, and complex.

BC Funding Solutions (“BCFS”) provides a different gateway. Operating since 2001, BCFS has facilitated over R2 billion in loans to sectional title bodies corporate and homeowners’ associations across South Africa. These loans fund tangible, everyday needs like waterproofing buildings, installing solar and battery solutions, repairing lifts, and stabilising schemes pursuing levy collections. They are not abstract exposures, but funding tied to the real economy of residential communities.

What underpins these loans is not just cash flow but a robust legislative framework. Community schemes are legally obligated to recover levies, which rank above mortgage bonds in priority. This means that repayment streams are enforceable, traceable, and structurally embedded in the very governance of the scheme itself.

The BCFS structure offers:

• Exposure to private credit uncorrelated with market swings.
• Strong legislative protections, giving levy recoveries priority ranking in enforceability.
• Proven scale and credibility, attracting both institutional and retail capital.

BCFS illustrates that alternatives need not be remote or opaque. They can be grounded in familiar realities, structured with legal clarity, and designed to deliver the benefits of diversification, resilience, and the illiquidity premium.

In the end, the real challenge is not whether alternatives deserve a place, they already do. It is whether capital is being deployed with purpose, into structures that reward patience, provide stability, and reflect the world we live in today.