Fund Structure
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Quick Answer
Investment categories outside traditional stocks and bonds — including venture capital, private equity, hedge funds, real estate, and commodities.
Alternative assets (or 'alts') are investments outside the traditional public market categories of stocks, bonds, and cash. For institutional investors, alternatives include venture capital, private equity, hedge funds, real estate, infrastructure, and commodities. Endowments like Yale and Harvard famously pioneered heavy alternative allocations in the 1980s-90s (the 'Yale Model'), generating substantially better returns than traditional portfolios. Venture capital is considered one of the highest-risk, highest-potential-return segments within alternatives. The illiquidity premium — extra returns for locking up capital for 10+ years — is a key rationale for LP allocations to venture.
In Practice
A $5B state pension fund rebalances its portfolio to include 15% in alternatives: 5% venture capital, 5% private equity buyouts, 3% real estate, and 2% hedge funds. The VC allocation goes to three funds — a top-tier early-stage fund, a growth equity fund, and an emerging manager program. Over a 10-year horizon, the alternatives sleeve targets 15%+ net IRR, compared to 7-8% expected from public equities.
Why It Matters
The flow of institutional capital into alternatives — particularly venture capital — has fundamentally changed startup economics. When pensions, endowments, and sovereign wealth funds allocate billions to VC, fund sizes grow, more startups get funded, and valuations rise. For founders, understanding the alternatives landscape explains why there's so much capital chasing deals in some cycles and so little in others. For aspiring fund managers, knowing how allocators think about alternatives is essential to raising a first fund.
VC Beast Take
Alternative assets sound exotic, but at this point they're anything but. The category has grown so large that 'alternative' is almost a misnomer — for major endowments and family offices, these are core holdings. The real distinction isn't traditional vs. alternative, it's liquid vs. illiquid. Venture capital sits at the extreme end of the illiquidity spectrum: 10+ year fund lives, no secondary market liquidity (until recently), and returns that take a decade to materialize. Allocators accept this because the best VC funds deliver returns no other asset class can match. But 'the best' is doing a lot of heavy lifting in that sentence — median VC returns have historically barely beaten public markets after accounting for fees and illiquidity.
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Alternative assets (or 'alts') are investments outside the traditional public market categories of stocks, bonds, and cash. For institutional investors, alternatives include venture capital, private equity, hedge funds, real estate, infrastructure, and commodities.
Understanding Alternative Assets is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Alternative Assets falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
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