Understanding How These Financial Powerhouses Work—And Why They Might Belong in Your Portfolio
You may have heard names like Blackstone, KKR, Apollo, or Ares thrown around in financial news or retirement investing circles. These firms aren’t banks. They’re not mutual funds, either. They’re something different—alternative asset managers—and they play a much bigger role in today’s financial world than most people realize.
So what exactly is an alternative asset manager? And why are these firms often more resilient—and more profitable—than traditional financial institutions?
In this post, we’ll break it all down in plain English. You’ll learn what these companies do, how they earn money, and why savvy investors (including billionaires and pension funds) rely on them to generate consistent, high-yield returns—often in the range of 12–18% annually.
What Is an Alternative Asset Manager?
An alternative asset manager is a company that invests in non-traditional assets on behalf of clients, including institutions, high-net-worth individuals, and increasingly, everyday investors.
Unlike mutual funds or ETFs that typically invest in public stocks and bonds, alternative asset managers focus on “alternative” investments like:
- Private equity
- Real estate
- Infrastructure
- Credit and private loans
- Venture capital
- Hedge fund strategies
- Renewable energy and farmland
These assets are often illiquid (you can’t buy or sell them quickly like stocks), but they tend to offer higher returns, lower correlation with the stock market, and more control over outcomes.
What Do Asset Managers Actually Do?
Think of an alternative asset manager as a professional investor for hire. Their job is to find unique opportunities, negotiate favorable deals, manage risk, and deliver returns to their investors.
Here’s a simplified breakdown of how the process works:
- Raise money from institutional clients like pension funds, endowments, insurance companies, and increasingly, individuals.
- Invest that money into alternative assets—buying companies, buildings, infrastructure projects, or loan portfolios.
- Improve or manage the investment (for example, turning around a struggling company or increasing rental income from a property).
- Sell the asset for a profit or continue generating income from it.
- Return profits to investors—and take a cut for themselves.
These firms usually operate in fund structures, meaning investors commit money for several years, and the manager makes decisions on their behalf.
How Do They Make Money?
Alternative asset managers have a two-part compensation model known as “2 and 20”—though the actual numbers can vary.
- Management Fees: Typically around 1–2% annually of assets under management (AUM), paid regardless of performance. This covers operating expenses, staff, research, etc.
- Performance Fees (Carried Interest): The real upside comes from taking a percentage of the profits—often 20% or more—when an investment is successfully exited. If they help a business grow, sell it for a 3x profit, and return capital to investors, they earn a sizable share of that gain.
The more they succeed for their investors, the more they earn. That creates a powerful incentive to perform.
Why Are They So Resilient?
Unlike traditional banks, which rely on loans, interest spreads, and volatile capital markets, alternative asset managers tend to be:
- Fee-based businesses – They collect steady management fees regardless of the stock market
- Asset-light – They manage other people’s money rather than risking their own balance sheet
- Diversified across asset classes – Real estate, private equity, credit, and infrastructure often behave differently than public markets
- Built for long-term investing – Their capital is often “locked in” for 5–10 years, which reduces the need to panic during market volatility
During times of stress—such as 2008 or 2020—many of these firms continued to generate profits and even thrived by scooping up undervalued assets when others were forced to sell.
What Makes Them Different From Mutual Funds?
Most mutual funds and ETFs are passively managed or tied to public markets. Their performance rises and falls with the stock or bond market—and they often charge low fees and deliver average returns.
By contrast, alternative asset managers aim for above-average returns by being more active, selective, and patient. They focus on private markets, where opportunities are harder to find—but potentially much more rewarding.
And while mutual funds are built for liquidity (you can sell any day), alternative asset managers are built for durability and income generation, often over multi-year time frames.
How Can You Invest in Them?
You don’t need to be a billionaire to invest with these firms anymore. Many alternative asset managers are publicly traded companies, meaning you can buy shares on the stock market just like you would with Apple or Coca-Cola.
Examples include:
- Blackstone (BX)
- KKR (KKR)
- Apollo Global Management (APO)
- Ares Management (ARES)
- Carlyle Group (CG)
- Brookfield Asset Management (BAM)
These companies pay dividends and often grow earnings steadily—even when the broader market is flat or declining.
By owning shares of these firms, you gain exposure to their entire portfolio of assets, their management fees, and their share of long-term profits.
Final Thoughts
Alternative asset managers aren’t a trend—they’re a fundamental shift in how capital is invested around the world.
They:
- Provide access to investments once reserved for the ultra-wealthy
- Help stabilize portfolios through diversification
- Often deliver higher long-term returns
- Can be a powerful addition to a retirement income strategy
If you’re looking for income, resilience, and exposure to real assets like private equity, real estate, and credit—without picking individual deals—owning shares of these firms could be the simplest way to invest like a pro.
This post is adapted from my book: The 15% Solution: Invest With the Billionaires, available now at Amazon.com in paperback and eBook formats. Inside, you’ll find practical strategies, top picks, and an easy-to-follow guide for safely investing in the world’s most profitable alternative asset managers.
Disclaimer: This article is for informational and educational purposes only. It does not constitute investment, legal, or financial advice. All investments carry risk. Always consult a qualified financial advisor before making investment decisions. Past performance is not a guarantee of future results.