The global market for alternative investments will be $18.3 trillion in five years, up from $9.3 trillion and almost twice its size at the start of this year, according to a biennial report by the research and analytics firm Preqin.
"Despite a challenging macroeconomic outlook, demand for private capital continues to show resilience," the report said. "Demand remains strong as investors continue to seek alternative sources of returns in an uncertain economic environment."
The alternative investment market's compound annual growth rate is expected to slow compared to recent years. From 2015-2021, the market grew 14.9% annually. During the coming five years, Preqin expects the market will grow 11.9% annually.
When hedge funds are included alongside private equity, real estate and other alternative asset classes, the global market is expected to reach $23.3 trillion by the end of 2027, up from $13.7 trillion at the end of 2021, meaning that hedge funds are somewhat a drag on the growth. When hedge funds are included, the global alternatives market is expected to grow 70.7%.
Retail investors, who historically haven't used alternatives, are driving the growth. Asset managers are making investment opportunities more accessible through technology as well as new products specifically for retail investors. Institutional investors and the wealthiest individuals have allocated money to alternatives and they also continue to invest more in the asset class.