From Clubby to Commoditized: The Transformation of Alternative Investing

Exclusive. Elusive. Bespoke. Clubby. Words I would not use to describe the “AI” products brokers are shoving into mom and pop IRAs today.

“Fiercely iconoclastic, anticommercial, and antimainstream” . . . words Wikipedia uses to define alternative music.

For years, private equity and hedge funds fit that description.

When I started in this business, private markets felt exclusive. Smaller partnerships controlled capital, often led by a single founder or tight-knit team. You could sit across the table from the actual decision makers and learn how they thought about risk, looked for opportunities, sized investments, and constructed portfolios. The average hedge fund managed $100 million but 50% of the industry managed funds of $25 million or less. Hedge funds put up 2-4x the returns of various benchmarks. Data on private equity fund sizes vary but $250 million seems fair for the median fund size at that time and target IRRs of 30%+ were marketed.

Access came through relationships, not distribution. Many funds had one page websites with a logo and phone number only - no information about the team, investment approach or even a physical address. You did not click a button or fill out a form to invest. You got introduced, and even then, the fund manager might not “let” you invest.

Committing meant locking up your capital for a long period of time. Getting that money back might take even longer. Performance reporting was not standardized. Over time, through quarterly letters, you got a feel for how the manager performed, portfolio evolved, and team grew. It felt personal; you learned about the people managing your money. Mistakes were owned, wins celebrated . . . but never too egregiously. The dirty little secret? You knew you were paying high fees, but in return you were getting superior returns; “alternatives” like private equity stood out from traditional investments:

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