The overlooked complexities of alternatives – and how independent advisers can close the gap

Ultra-high-net-worth (UHNW) investors continue to expand allocations into private credit, hedge funds, private equity, real assets, and other alternatives. But while investor enthusiasm is accelerating, the due diligence burden on independent advisers has never been higher.

Institutional allocators operate with deep teams, specialist research partners, and rigorous operational due diligence frameworks. Most independent advisers simply don’t have access to these resources internally – yet are expected to evaluate increasingly complex strategies with confidence.

At Fundlab, we believe the advice community deserves better support. And that starts by recognising the often overlooked complexities within alternatives, and building the right ecosystem around advisers to navigate them.

1. Alternatives are not standardised – and that matters

Unlike public markets, private strategies lack uniform standards for:

• valuation methods
• cashflow reporting
• leverage usage
• portfolio construction
• fee calculations

Two managers with the same label – “opportunistic credit” or “market-neutral” – may deliver completely different risk exposures. Without deeper analysis, advisers risk allocating to strategies they do not fully understand.

Table 1. Alternatives are not standarised like the public markets, creating more diligence requirements

2. Fund structures are more complex than ever

Master-feeder vehicles, offshore structures, SPVs, co-investment sleeves and parallel funds all introduce:

• liquidity mismatches
• regulatory considerations
• tax implications
• operational dependencies
• investor-protection differences

The structure behind a strategy can meaningfully alter its risk, liquidity, transparency, and alignment.

3. Fees are often misaligned and frequently misunderstood

Private market fees extend far beyond the headline numbers. Hidden layers include:

• subscription line impact on internal rates of return (IRRs)
• monitoring and transaction fees
• netting rules on carry
• crystallisation timing
• incentive fees on unrealised gains

Understanding true net economics is essential to protecting UHNW client outcomes.

4. Operational risk Is underappreciated

Institutional investors often spend as much time on operational due diligence (ODD) as on investment research itself. In alternatives, operational failures – governance weaknesses, service-provider risks, valuation errors – are often the real source of investor harm.

5. Track records are not always what they seem

Private market performance can be influenced by:

• favourable vintages
• survivor bias
• marketing-selected track records
• key-person departures
• strategy drift

Advisors need to look beyond the glossy pitchbook.

6. Liquid alternatives can sometimes achieve the same objectives – with less complexity

A critical message often lost in today’s “private markets” enthusiasm: Many alternative return characteristics can be accessed more efficiently through liquid or listed structures.

These include:

• local offerings with high levels of transparency
• diversified market-neutral strategies
• listed private credit vehicles
• exchange-traded notes and multi-manager credit platforms

Some liquid alternative growth approaches consistently deliver net mid-teen returns without long lock-ups, multi-year capital calls or opaque structures.

Before moving to private markets, advisors should clearly define:

• What is the client’s actual return target?
• Is illiquidity required – or assumed?
• Is the complexity justified by the potential alpha?
• Are parties properly aligned and compensated ?

Complexity for complexity’s sake is not a strategy.

And for UHNW families with scale: terms can often be negotiated –fees, co-investment access, reporting, and liquidity.

The adviser’s challenge: Doing more with limited time and resources

Independent advisers today must act as:

• strategy research/portfolio constructors
• manager selectors
• risk officers
• governance evaluators
• fee negotiators
• cashflow modellers
• client educators and psychologists

It is simply unrealistic to expect small teams to build institutional-grade due-diligence capabilities internally, particularly at the first stages on investing within private markets. This is where the right partners make all the difference.

Michael Armitage CAIA is principal of Fundlab Strategic Consulting Pty. Ltd.