What are alternative investments, where do their returns come from, and what risks do they involve? This guide covers the key alternative asset classes, from real estate and private equity to commodities and cryptoassets, and examines their liquidity, accessibility and role in an investment portfolio.
This content has been produced by Kvarn Investment Services Ltd, a licensed investment firm supervised by the Finnish Financial Supervisory Authority. The content is intended for informational purposes only and should not be interpreted as investment advice or recommendation. All investing involves risks, and past performance is not a guarantee of future returns.
This article is part of Kvarn X's series on alternative investments. The series covers different alternative asset classes from the fundamentals onward: real estate, private equity, private credit, hedge funds, structured products, commodities, cryptoassets, tokenised securities and, finally, stablecoins.
Alternative investments such as private equity, real estate funds, private credit, hedge funds, structured products and cryptoassets have long been a core part of professionally constructed investment portfolios. In Finland, allocations to alternative investments have also become a significant part of private investors' portfolios over the past 15 years. The traditional split between equities and fixed income no longer defines a diversified investment portfolio on its own; the return potential and diversification benefits of alternative asset classes also play a role.
In this guide, we look at what is typically meant by alternative investments, where returns come from, what risks investors bear, how liquid each investment is, which investors they may be suitable for in Finland, and what the investment structure changes - and what it does not.
Alternative investments are typically divided into the following main categories:
- real estate and real assets
- private equity
- private credit
- structured products
- commodities
- hedge funds
- cryptoassets, a more recent addition
This classification is an established industry convention and is also used by leading professional organisations in alternative investments, such as the CAIA Association.
Each category has its own source of return and risk profile. Real estate generates rental cash flow and capital appreciation, PE (private equity) generates returns through operational value creation, private credit through interest income, and structured products through modified risk exposure relative to a traditional long-only portfolio. Each also has its own liquidity profile and distinct pricing characteristics.
This distinction helps investors understand what they are actually buying. It also highlights that alternative investments are not a homogeneous group, but a collection of materially different assets packaged through different investment products. Their only common characteristic is that they are neither listed equities nor traditional fixed-income securities.
Alternative investments share three key characteristics: they are often illiquid, their valuations are based on price estimates that are updated less frequently, rather than on continuous market pricing, and their sources of return differ from those of traditional investments. These characteristics make alternative investments both attractive and challenging.
The main rationale for alternative investments is diversification: when investments do not move in the same direction at the same time, overall portfolio risk falls. In practice, however, this is more complex than it appears.
Many alternative investments appear less risky than equities on paper. This does not mean that they are actually less risky, but rather that their values are updated less frequently. This phenomenon is known as return smoothing, and it can create a misleading picture of the true level of risk.
Another key misconception concerns liquidity. An illiquid asset cannot be made genuinely liquid simply through its structure. A closed-end fund locks up capital for the full investment period. A semi-liquid structure offers limited redemption windows, typically quarterly, but management companies almost invariably retain the right to suspend redemptions during periods of market stress. Direct investments in real estate or a company are fully illiquid: an exit is possible only by selling the entire asset.
This has been seen in practice in Finland. Several real estate funds had to suspend redemptions in 2022-2025 when investors sought to redeem their investments at the same time, while the underlying assets could not be realised quickly enough because the real estate market had effectively come to a standstill following the sudden rise in interest rates. The structure therefore does not change the fundamental nature of the asset class. An illiquid investment cannot be made liquid through a fund structure or co-ownership.
The diversification benefit is nevertheless real. Alternative investments can introduce sources of return that are not directly tied to public markets, but this benefit is realised only if the investor can accept illiquidity throughout the entire investment horizon. To compensate for this, the investor should demand and expect a meaningful liquidity premium. This means that the return target should be materially higher than the expected return from equity and fixed-income markets in order to compensate for liquidity risk.
This is a question that marketing materials rarely answer directly.
In practice, most high-quality private equity and private credit funds in Finland are accessible only to investors who meet the criteria for professional investor status, particularly Tier 1 investors such as pension insurers. The opt-up procedure under investment services legislation is one route to this status for private individuals as well. A private individual may request to be classified as a professional investor if they meet at least two of three conditions: the investment portfolio exceeds 500 000 euros, the person has sufficient professional experience in the financial sector, or they have carried out significant investment transactions with sufficient frequency. This is, however, only one mechanism among others, not the only route, and classification always involves the service provider's discretion as well as the client's own assessment of suitability.
For a private individual with a portfolio below 500 000 euros, the practical options are more limited. Crowdfunding platforms provide access to individual growth companies, but this is a single-company investment rather than a diversified PE fund, so the risk profile is materially different. PE exposure available through the stock market is structurally different from a direct fund investment: listed PE management companies such as Partners Group, Intermediate Capital Group (ICG) and Blackstone are publicly traded companies. By buying their shares, an investor gains exposure to a company that manages PE funds, but not directly to the portfolio companies. The iShares Listed Private Equity UCITS ETF (IQQP) consists precisely of such listed management companies. As a result, its correlation with the stock market is higher and the liquidity premium lower than in a closed-end PE fund.
Within ELTIF 2.0 structures, Hamilton Lane Private Markets Access ELTIF is one of the first products available through Nordic distribution channels. It provides exposure to the underlying portfolio companies themselves with a minimum investment of 5 000 euros, but it is tied to a semi-liquid structure and quarterly redemption windows.
With a portfolio of more than 500 000 euros and professional status, a broader range of direct investment opportunities becomes available: closed-end PE funds, private credit mandates and infrastructure funds through private banks. In practice, however, access to the best funds requires substantially greater investable assets, often a portfolio worth millions or tens of millions of euros (HNWI or family office level). Minimum investments are typically 100 000-250 000 euros per fund, so diversification requires significant total capital.
Over the past 15 years, the availability of alternative investments has expanded significantly across all wealth-management client segments. Smaller wealth-management and private-banking client segments often primarily use discretionary portfolio management mandates, under which the portfolio manager makes allocation decisions on behalf of the investor. An individual investment made through discretionary portfolio management can be smaller, because client investments are often pooled into a larger aggregate amount, allowing the minimum investment requirement of an individual fund to be shared across clients. Alternative investments have therefore been added to discretionary portfolio management strategies almost without exception.
Where returns come from: Real estate offers two sources of return: ongoing rental cash flow and long-term capital appreciation. In institutional portfolios, real estate often also acts as an inflation hedge because lease agreements frequently include index-linked rent adjustments.
What risks are involved: Location risk is significant. In Finland, for example, population trends and migration create sharp differences between markets: demand has remained stable in growth centres such as Helsinki, while vacancy risk is real in smaller towns. Interest-rate risk affects both real estate valuations and financing costs.
How liquid is the investment: Direct real estate investments are fully illiquid. Real estate funds offer apparent liquidity, but the illiquidity of the underlying assets does not disappear because of the structure.
Who is it suitable for in Finland: Direct real estate investment is the most widely accessible alternative asset class. Owning a rental apartment does not require professional investor status; in practice, almost anyone can get started relatively easily. It is also the only asset class for which debt financing, or leverage, is available on reasonably accessible terms. This partly explains the popularity of real estate and residential property investing.
What the structure changes and what it does not: The taxation of real estate investments in Finland varies depending on the investment structure. Rental income from direct ownership is taxed as capital income and appreciation as a capital gain. The tax treatment of investments made through a real estate fund depends on the fund's legal form, its domicile, and whether the return is realised for the investor as a distribution or as a capital gain (these can differ significantly). Real estate funds are typically Finnish special investment funds or alternative investment funds structured as limited partnerships. Returns from foreign funds are also typically treated as capital income for a Finnish investor. The structure does not, however, change the fundamental nature of the underlying assets: real estate remains inherently illiquid, which means a fund may have to impose redemption restrictions precisely when liquidity is needed most during periods of market stress.
Where returns come from: In buyout private equity investments, returns typically arise from a combination of three factors: EBITDA growth, or operational value creation; debt reduction (deleveraging) during the investment period; and changes in the exit multiple, meaning the multiple at which the company is sold relative to the multiple at which it was acquired. Operational value creation means concrete improvements in the company's business, such as increasing efficiency, entering new markets, improving margins or carrying out strategic transactions (add-on M&A) during the fund's ownership period. According to McKinsey's analysis, a significant share of historical PE returns has come specifically from the use of leverage and rising valuation multiples (multiple expansion), rather than solely from operational improvements. This makes PE returns more sensitive to interest rates and market valuations than a simple narrative of 'improving the company' might suggest.
What risks are involved: Company-specific risk is high. Diversification is more difficult than in listed equities because minimum investments are large and the number of funds in a single portfolio often remains limited. Interest-rate risk is particularly relevant to buyout strategies that rely on debt financing. Investors also bear vintage risk, meaning the timing of the investment relative to the market cycle. Poor timing can weaken the returns of the entire fund because capital is committed for a long period. Key person risk is also material, as returns depend heavily on the fund management team's ability to identify and execute value creation.
How liquid is the investment: Closed-end structure. A fund's life cycle is typically around 10 years, while the holding period for a portfolio company is 4-7 years in buyouts and 8-12 years in venture capital. The investor makes a binding capital commitment at the outset, but the fund draws it down through capital calls gradually over several years. This creates the J-curve effect, where returns are negative in the early years because of fees, until value creation and exits begin to generate cash flows back to the investor. Exiting during the investment period is possible only through the secondary market, often at a discount.
Who is it suitable for in Finland: In practice, professional investors. Although professional investor status can provide access under certain conditions with a portfolio of 500 000 euros, allocations to the best PE funds are often reserved for substantially wealthier investors (HNWI or family office level). ELTIF 2.0 is gradually lowering the threshold, but availability in Finland remains limited.
What the structure changes - and what it does not: The tax treatment of a PE fund depends on the fund's legal structure - returns are taxed as capital income or business income depending on the circumstances. Taxation depends in particular on whether the fund is tax-transparent, for example a limited partnership, or not. Wealthy investors often invest in PE funds through their own investment company, or holding company, to simplify taxation and administration.
ELTIF 2.0 is the EU's revised European Long-Term Investment Fund regulation, which entered into force in January 2024. The regulation removed the previous 10 000 euro minimum investment threshold and the portfolio restriction entirely, which is its most important change from the perspective of retail investors. In practice, this opens institutional funds to a broader group of investors. A fund's minimum investment is now determined by its own prospectus. Access is improving in practice, but only gradually.
Where returns come from: Private credit is lending provided directly to companies without traditional banks. Although the private credit market has grown strongly and is forecast to reach approximately 5 trillion dollars by 2029, in absolute terms it is still only a fraction of traditional bank financing and, in particular, of the leveraged finance market that existed before the financial crisis. It seeks to fill the financing gap that emerged as bank regulation was tightened after the financial crisis. Returns come from interest income, which is typically higher than on public bonds, reflecting an illiquidity premium and higher credit risk. These loans often carry floating rates, for example margins linked to SOFR or Euribor, which can provide investors with some protection against rising interest rates. Investors can also influence loan terms, collateral and covenants in ways that are not possible with listed instruments.
What risks are involved: Credit-loss risk is the primary risk. Private credit funds also involve valuation risk: loan values are based on the fund manager's own assessment rather than market pricing, which can create an illusion of stability even when the quality of the loan portfolio has deteriorated. This phenomenon, also known as return smoothing, conceals the true volatility and risk because the absence of a market price prevents daily repricing. Fitch Ratings reported in February 2026 that the default rate of U.S. private credit funds had risen to 5.8% in January 2026, significantly above the approximately 4% rate for listed speculative-grade corporate bonds.
How liquid is the investment: Semi-liquid or fully illiquid, depending on the structure. The key structural tension is that many semi-liquid funds have promised quarterly redemptions even though the underlying loans are effectively illiquid. This mismatch has been the biggest structural challenge in the private credit market. In early 2026, this tension clearly materialised in the United States.
Blue Owl Capital suspended quarterly redemptions from its OBDC II fund and announced a controlled wind-down of the fund. The move followed more than 150 million dollars of redemption pressure over nine months, as well as investor opposition when the company attempted to merge the fund with another fund, which would have left investors facing an approximately 20% decline in value.
BlackRock's HPS Corporate Lending Fund received redemption requests above its quarterly redemption limit for the first time in its history, amounting to approximately 9.3% of the fund's value in a single quarter. BlackRock paid half and applied redemption restrictions to the remainder. The company's share price fell 6.7% on the news.
Blackstone took the unusual step of raising the quarterly redemption limit in its BCRED fund from the normal 5% to 7.9% to cope with increased redemption pressure. The company and its employees invested 400 million dollars in the fund to meet redemption requests.
KKR restricted redemptions in its own unlisted BDC fund at the end of March 2026 after redemption requests exceeded the 5% threshold.
The U.S. Congressional Research Service (CRS) published a separate report in April 2026 stating that funds' exposure to the SaaS sector is estimated at 500 billion dollars and that disruption caused by artificial intelligence could push loss rates higher still. These cases are not isolated exceptions; they demonstrate that a semi-liquid structure does not turn an illiquid loan portfolio into a liquid one.
Who is it suitable for in Finland: In practice, institutional investors and, with certain reservations, smaller professional investors through private banks and wealth-management portfolios.
What the structure changes - and what it does not: Investments in private credit are almost always made through a fund. Interest income received through a fund is typically taxed as capital income for the investor. The same applies to a directly issued loan, such as a crowdfunded corporate loan or peer-to-peer loan, whose interest is likewise capital income. A fund structure does not, however, change credit-loss risk or the opacity of valuations. Instead, it provides diversification through a single investment, along with professional management and an investment process.
Where returns come from: Structured products are not an independent asset class in the same sense as PE or real estate. They are instruments used to modify the risk exposure of existing assets. Returns may arise, for example, from participation in market upside purchased at the cost of capital protection, or from a higher coupon in exchange for taking on a specific downside risk profile.
Capital-protected products: These products aim to return the invested capital at maturity, most often with 90-100% protection. The protection is achieved by investing most of the capital in a zero-coupon bond and the remainder in derivatives that provide participation in the upside of the underlying asset, such as an equity index. Returns come from market gains, but the investor typically gives up part of the full upside potential because of the opportunity cost of capital protection.
Autocall structures (autocallable notes): These offer investors a fixed, high coupon, but the product's term is conditional. An autocall structure typically consists of a zero-coupon bond, a set of purchased digital call options and a conditional put option sold by the investor. The product matures automatically (autocall) before its final maturity date if the underlying asset is above a predetermined level on specified observation dates. If the automatic redemption does not occur and the underlying asset falls below the protection level (barrier) during the investment period, the investor bears the decline in the underlying asset in full. The structure is suited to a market view in which the underlying asset remains stable or rises moderately.
Credit-linked products (CLN, credit linked notes): These products provide indirect exposure to credit spreads, typically in corporate bonds or credit-risk indices such as the iTraxx Crossover. The return comes from a higher coupon, which compensates the investor for bearing the risk of credit losses in the underlying exposure. CLNs are often structured as notes, but repayment of principal is linked to a credit derivative (credit default swap, CDS). If credit losses occur, the investor loses the corresponding proportion of principal. In more complex structures, if credit losses exceed a predetermined threshold, the investor may lose capital with greater leverage.
Booster structures (down-and-in put with enhanced participation): These structures aim to provide investors with enhanced participation in the upside of the underlying asset, for example 150% of the rise in an equity index or individual share, while the return is capped on the upside. The core of the structure is a sold put option and a purchased participation option, which together provide additional upside exposure. The structure protects against losses down to a specified buffer level (for example -10% or -20%), but if the buffer is breached (the price has fallen by more than that amount at maturity), the investor bears the losses in full. These structures suit a moderately bullish market view where the investor is willing to limit upside potential in exchange for a buffer against downside risk.
What risks are involved: Structuring does not eliminate risk; its primary purpose is to tailor and redistribute market risk between the investor and the issuer. The investor earns a return in exchange for bearing a specific risk, or gives up part of the return potential in exchange for downside protection. The investor nevertheless always bears several other risks.
Issuer risk: This risk is always present. Even in a capital-protected product, the investor always bears the credit risk of the issuer, typically the bank issuing the product, so the principal is not protected against that risk.
Structuring costs: The investor pays the costs of the structure, which are not always apparent at first glance and can be difficult to assess.
Non-linear exposure: The risk profile is non-linear and complex. In some structures, for example, a high return is offered in exchange for the investor taking the full downside risk once a certain threshold is breached.
How liquid is the investment: Liquidity varies by structure. Many structured products are tied to a maturity date, and selling before maturity often takes place at a significant discount. Even when the issuer provides a secondary market, often through an exchange or its own trading system, the investor pays a liquidity cost that can be substantial. Secondary-market pricing is complex because it depends not only on the value of the underlying asset but also on remaining maturity, interest rates, derivative valuations (implied volatility) and the issuer's liquidity needs. The issuer is usually the sole market maker.
Who is it suitable for in Finland: Structured products are accessible to a broader group of investors than PE or private credit. Banks actively offer them to private clients as well, with minimum investments starting at a few thousand euros. They are therefore popular among private-banking and wealth-management clients. Despite this, the products require an appropriateness assessment under MiFID II because they are considered complex instruments whose non-linear risk profile the investor must understand. Investment advice and discretionary portfolio management additionally require a suitability assessment.
What the structure changes - and what it does not: Returns are taxed as capital income at maturity. Tax treatment is generally straightforward. The structure does not, however, eliminate market risk - it shifts it into a different form and often concentrates losses in particular adverse market scenarios. Nor does the structure create genuine diversification benefits compared with other asset classes, because the underlying assets of structured products are typically listed equities or indices. The structure is primarily a way of packaging derivatives and debt instruments.
Hedge funds are a key asset class for institutional investors, yet they are conspicuously absent from most guides aimed at private investors. The reason is not that they are irrelevant, but that in practice they are inaccessible to everyone except institutional investors and extremely wealthy private individuals.
Where returns come from: The return logic of hedge funds differs fundamentally from that of other asset classes. The objective is not merely to track market returns (beta), but to generate active alpha - returns arising from the portfolio manager's skill and strategy regardless of market conditions. This is known as absolute-return investing, where success is measured by the ability to generate returns independent of the market rather than simply participating in a rising market.
In a long/short equity strategy, the fund buys undervalued shares and sells overvalued shares short, seeking market-neutral returns. A global macro strategy is based on views about macroeconomic developments such as currencies, interest rates and commodities, and expresses those views through derivatives across several markets simultaneously. Arbitrage strategies seek pricing inefficiencies, for example in mergers or bankruptcies. An event-driven strategy exploits corporate events such as acquisitions or restructurings. What these strategies have in common is an attempt to separate returns from the overall direction of the market.
What risks are involved: The risk profile of hedge funds is complex because the strategies differ so substantially from one another. A long/short strategy is based either on a fundamental investment view or on the asset manager's quantitative model, which is generally not disclosed in detail for competitive reasons. Strategy risk is high: the portfolio manager may simply be wrong, the model may fail to work, or a change in market conditions may invalidate its assumptions.
In arbitrage strategies, the key risk is convergence risk: price gaps may widen further before they close, causing losses. These strategies generally use very high leverage to magnify small returns, making them sensitive to leverage risk and liquidity problems. The broad mandate of a global macro strategy allows positions to be taken across markets using any available instrument. This freedom also increases operational and model risk. In global macro strategies, geopolitical events or unexpected central-bank decisions can cause large losses very quickly. Short selling carries theoretically unlimited loss potential. Hedge funds also frequently use leverage, which magnifies both gains and losses.
Another major risk is the fee structure, typically 2/20, under which the investor pays a management fee, usually 1-2%, regardless of performance, and a performance fee, typically 20% of profits. This fee structure requires the fund manager to deliver substantial outperformance for the investor's net return to remain competitive. In addition, the lack of transparency in hedge funds makes risk modelling extremely challenging.
How liquid is the investment: Hedge funds are typically significantly more liquid than PE or real estate because their underlying investments are often listed securities and derivatives. Many funds offer monthly or quarterly redemption opportunities, allowing investors to exit relatively quickly. In exchange for this liquidity, funds often impose lock-up periods at the beginning of the investment, typically 1-2 years, during which redemptions are not permitted, as well as redemption gates that limit the proportion of the fund's capital that can be redeemed during a given period. During periods of market stress, these restrictions may be activated and the fund may suspend redemptions entirely, as happened widely during the 2008 financial crisis, in order to protect the fund's capital from forced sales at illiquid prices.
Who is it suitable for in Finland: Hedge funds are, in practice, inaccessible to Finnish private investors. Minimum investments are typically 1-5 million euros, the structures are complex, and they are designed for institutional investors such as pension funds and family offices. Finnish pension insurers such as Varma and Ilmarinen are significant global hedge-fund investors. They allocate to hedge funds as part of their overall alternative-investment portfolios, and their combined investment assets exceed 100 billion euros, which gives them access to global Tier 1 fund managers. For a private individual, the route is effectively closed without substantial wealth and institutional relationships.
What the structure changes - and what it does not: Hedge funds typically operate through limited partnership or similar structures. They are often established in offshore jurisdictions with lighter regulation, such as the Cayman Islands, or, in Europe, typically Luxembourg, allowing for more flexible fund structures, investment strategies and use of leverage. These specialised fund structures and a possible offshore domicile increase the need for a professional fund-manager selection process on the part of the investor, because lighter regulation increases the investor's due diligence obligations. The structure does not change the strategy's fundamental risk profile.
Where returns come from: Commodities differ from all the other asset classes covered in this series because their returns are not based on cash flow, interest or business growth. In a commodity investment, the investor owns the raw material itself - from gold and silver to oil, natural gas, copper, wheat and coffee - or a financial claim linked to it. Returns arise from price formation through supply and demand, but different commodity groups have materially different drivers.
For precious metals, above all gold, prices are driven by investor confidence, the purchasing power of currencies, central-bank demand and safe-haven demand during periods of uncertainty.
Energy responds to geopolitical tensions, production decisions, inventory levels and the direction of global economic growth.
Agricultural commodity prices are tied to weather, crop outlooks, logistics and trade policy in ways that create a distinct risk environment of their own. The quality of a commodity allocation therefore depends more on selection and structure than simply on having some form of commodity position in the portfolio.
Historically, broad commodity indices such as the Bloomberg Commodity Index have lagged most major asset classes and have only narrowly outpaced inflation over the long term. The value of commodities to investors has come more from diversification, inflation sensitivity and crisis behaviour than from strong real returns. Expectations should be set accordingly.
What risks are involved: The central risk in commodity investing is confusing the investment structure with the commodity itself. A futures-based oil ETP does not behave like the spot price of oil because the term structure of the futures curve and roll costs materially affect returns. An investor may own shares in a commodity-producing company, the physical commodity, futures-based index exposure or an exchange-traded ETC. It is important to understand that each of these is a distinct investment with its own risk profile.
Commodity groups also behave so differently that they should not be treated as a single category. Gold does not behave like oil, nor silver like copper. Agricultural commodities move according to their own weather- and policy-driven dynamics. Taking exposure to a broad commodity basket as a 'commodity investment' can result in an exposure whose behaviour the investor cannot predict.
How liquid is the investment: Exchange-traded commodity products such as ETCs, ETPs and commodity ETFs are liquid, market-priced instruments that can be traded during the exchange trading day. In this respect, they compare favourably with most other alternative asset classes covered in this series. Physical commodity ownership, such as investment gold, is also relatively liquid, but transaction costs and storage arrangements must be taken into account. Futures-based structures require active management because of rolling and, as such, are not suitable for passive long-term ownership.
Who is it suitable for in Finland: Commodities are not typically a core portfolio holding but a complementary element. In a portfolio below 100 000 euros, direct fund investments are not accessible, but exposure can still be built through exchange-traded products. Gold is the most natural starting point for many investors, and a physically backed gold ETC or digital investment gold provides straightforward exposure without the complexity of futures. In a portfolio of 100 000-500 000 euros, gold as a safe haven or inflation hedge, together with broader ETC or ETP exposure for diversification, may be justified with an allocation of no more than 5-10%. In a portfolio above 500 000 euros, commodities can form a separate strategic layer: gold as a reserve asset, energy as cyclical exposure, and agriculture as a diversifying addition.
In Finland, commodities have traditionally played a smaller role in private investors' portfolios than, for example, in the United States or Central European markets. Internationally, however, gold is an established portfolio cornerstone for many wealthy investors, family offices and institutions when the objectives are diversification, access to a liquid safe haven and managing uncertainty.
What the structure changes - and what it does not: The structure of commodity exposure largely determines what the investor actually owns and how the investment behaves. A physically backed gold ETC is a different investment from a futures-based oil ETP or shares in a mining company, even though all three may appear to be 'commodity investments'. For tax purposes, the sale of investment gold is exempt from value-added tax under certain conditions, while capital gains on securities are taxed as capital income - so the structure also affects tax treatment.
The structure does not, however, change the fundamental nature of the commodity: gold does not generate cash flow regardless of structure, a futures-based product always carries roll costs and market-timing risk, and indirect exposure through a company introduces business risk. In this case too, the investor has a responsibility to understand what they own.
Where returns come from: Cryptoassets differ from most traditional asset classes in that their valuation is generally not based on cash flow or real assets. One exception is proof-of-stake networks such as Ethereum, where validators earn staking rewards on assets they lock up - a structure that in practice resembles a dividend- or interest-like reward, although its legal and economic nature differs significantly from either. The valuation of proof-of-work networks such as Bitcoin, meanwhile, relies primarily on algorithmic scarcity, use of the network and market participants' confidence.
Bitcoin is based on a limited supply defined at the protocol level. Its maximum supply is 21 million bitcoin, and investment returns arise from price formation through the mechanism of supply and demand. Demand is supported, among other things, by the fact that a blockchain's native cryptoasset is required for transaction fees and use of the protocol: every use of the network creates structural demand for that cryptoasset. This logic is often referred to as the 'fat protocol' thesis. Unlike the internet, where value accrues to the application layer rather than the protocol itself, in blockchain architecture value accumulates at the protocol layer. The more applications are built on top of the network and the more users they attract, the greater the structural demand for the native cryptoasset.
Ethereum's valuation reflects this logic on several levels. Ethereum is not merely a payment network, but a programmable platform on which thousands of decentralised applications operate, from DeFi protocols and NFT marketplaces to decentralised autonomous organisations. Every action performed in these applications requires ETH to pay transaction fees, known as gas fees, so as network usage grows, structural demand for ETH rises accordingly. A portion of transaction fees is directed to validators and a portion is permanently burned, reducing supply and thereby affecting value formation. DeFi platforms also offer returns from lending and providing liquidity. Ethereum and the broader digital-asset ecosystem therefore provide exposure to decentralised-finance infrastructure and to an asset class with no direct equivalent in the traditional investment world.
Stablecoins form a distinct category of their own: cryptoassets whose value is pegged to a reference asset, typically the U.S. dollar. Unlike cryptoassets such as Bitcoin or Ethereum, stablecoins are not designed to appreciate in value; instead, they function as a medium of exchange and store of value within the crypto ecosystem. Stablecoins are a fundamental building block of DeFi infrastructure: most lending, liquidity and derivatives activity in decentralised finance is built on them.
The growth of stablecoins is also one of the key drivers of structural demand for blockchains and provides a concrete illustration of how demand for cryptoassets can arise from actual use rather than solely from speculative investment demand. Every stablecoin transaction - for example a transfer, exchange or use as collateral in a DeFi protocol - takes place on a blockchain and requires that network's native cryptoasset to pay the transaction fee. The combined market capitalisation of stablecoins has grown from a few billion dollars to more than 300 billion dollars between 2020 and 2026, and this growth has directly increased usage of Ethereum, Solana and other smart-contract networks. As use cases such as the stablecoin economy expand, they create greater structural demand for the native cryptoassets of their underlying platforms, regardless of whether an individual user wants exposure to price volatility in the cryptoasset market.
From an investor's perspective, stablecoins also make it possible to seek returns without exposure to price volatility, for example by participating in lending protocols or liquidity pools. Stablecoins, their different implementation models and the associated risks are discussed in more detail in a separate article.
What risks are involved: Cryptoasset volatility has historically been many times greater than that of traditional asset classes, and correlations with, for example, equity markets vary significantly depending on market conditions. The diversification benefit can therefore weaken precisely when it is needed most.
It is also worth noting that when the SEC approved spot Bitcoin ETPs in January 2024, it specifically emphasised that the approval did not constitute a Commission endorsement of Bitcoin as an investment. Finanssivalvonta, meanwhile, points out that MiCA regulation does not eliminate the key risks associated with cryptoassets, such as sharp price volatility, counterparty risk and cybersecurity threats; rather, it imposes requirements on service providers intended to improve investor protection and market transparency.
How liquid is the investment: Cryptoassets are the most liquid alternative investment asset class. A key difference from traditional asset classes is that cryptoasset markets are open 24 hours a day, seven days a week, without restrictions tied to exchange opening hours. This distinguishes them significantly from, for example, equity markets, where trading is limited to exchange opening hours, and from private equity funds and real estate investments, where liquidity can be very limited.
The daily trading volumes of the largest cryptoassets, such as Bitcoin and Ethereum, are substantial globally, which means in practice that positions can be opened and closed quickly without significant market impact. For smaller cryptoassets, however, liquidity can be considerably weaker, and investors should assess liquidity risk asset by asset.
Taxation in Finland: MiCA regulation does not change the tax treatment of cryptoassets; taxation continues to be determined in accordance with Verohallinto's guidance. Every sale, exchange into another cryptoasset or use as a means of payment is a separate taxable event for which a capital gain is calculated and taxed as capital income. In practice, this means that an exchange between cryptoassets, such as exchanging Bitcoin for Ethereum, also triggers a taxable event even if fiat currency is never involved.
Accurate records must be kept from the outset: the acquisition cost, date and consideration for each transaction must be documented in order to calculate the capital gain or loss. Incomplete record-keeping is, in practice, the most common administrative challenge for active cryptoasset investors.
Allocation: Institutional consensus typically places cryptoassets at between one and five per cent of the overall portfolio. This is justified by the asset class's asymmetric return profile: a limited allocation provides exposure to potentially significant appreciation while ensuring that a complete loss of value would not jeopardise the return target of the entire portfolio. The appropriate allocation for an individual investor nevertheless depends on risk tolerance, investment horizon and the composition of the rest of the portfolio.
Who it suits and regulation in Finland: Technically, cryptoassets are the most widely accessible alternative asset class. They have become established in institutional investing, particularly in the United States and Central Europe, where major financial and fintech firms are extensively integrated into cryptoasset markets.
The regulatory framework has changed significantly: the EU's MiCA regulation required full compliance in Finland from July 2025 and in all EU countries by July 2026 at the latest. The regulation harmonises requirements for service providers, improves investor protection and increases market transparency - but it does not remove the structural risks associated with the asset class.
Investors should ensure that their chosen service provider holds a CASP authorisation issued by Finanssivalvonta. So far, only a very limited number of CASP providers have been authorised in the Nordic countries - the largest concentration is in Central Europe. Kvarn X is one of the Finnish CASP providers.
In professional asset management, alternative investments form a significant part of the portfolio. Finland's largest pension insurers, Varma and Ilmarinen, have allocated approximately 20-30% of their investment assets to alternatives, including real estate, private equity and infrastructure.
Yale's endowment has historically allocated 60-70% to alternative investments. The so-called Yale model, developed by David Swensen, is based on the idea that the liquidity premium is significant over the long term and can be exploited systematically. Yale's structural advantages are, however, unique: no mandatory redemption obligations, an effectively perpetual investment horizon and exceptional access to the world's best closed-end funds. These figures are therefore not comparable with those of an ordinary private investor and should not be treated as targets in themselves.
For a Finnish private investor, a realistic approach depends on portfolio size:
Below 100 000 euros: Direct fund investments in alternative asset classes are typically inaccessible because of minimum investment requirements and professional investor status. Diversification can be achieved cost-effectively through index funds, but exposure to alternative asset classes can also be built through exchange-traded products. Listed PE management companies such as Blackstone or Partners Group, REIT ETFs in the real estate sector, and ETPs investing in commodities and infrastructure provide a liquid and cost-effective way to gain diversification benefits. The structure is, however, different from closed-end funds: correlation with the stock market is higher and the liquidity premium lower.
100 000-500 000 euros: A real estate fund or listed PE exposure may be justified with an allocation of no more than 10-15%. Understanding liquidity risk is critical at this portfolio size because the structure does not protect investors from redemption restrictions, as the closures of real estate funds in 2022-2025 demonstrated.
More than 500 000 euros and professional status: Broader diversification may be justified. PE funds, private credit and direct real estate investments can account for 15-25% of the portfolio. A professional asset manager can add clear value at this portfolio size, both in terms of access to funds and risk management.
The common denominator across all portfolio sizes is the same: alternatives add value only if the investor can tolerate illiquidity throughout the investment horizon and understands the risk they are bearing. The size of the allocation is not decisive, and the structure does not change the fundamental nature of the asset class.
Alternative investments are a valid component of a modern investment portfolio. They are not, however, a shortcut: they require more capital, longer investment horizons and a deeper level of understanding than traditional investments.
The single most important principle is this: an investment's structure does not change its fundamental nature. An illiquid asset remains illiquid even when packaged in a fund. Valuation risk does not disappear simply because it is not visible in daily prices. Nor is the investor's responsibility to understand the risks they bear transferred to the fund manager.
Finanssivalvonta: Cryptoasset service regulation tightened with the MiCA Regulation, April 2025.
Finanssivalvonta: The first provisions of the MiCA Regulation will begin to apply on 30.6.2024.
ESMA: MiFID II Annex II - professional investor criteria.
ESMA: Markets in Crypto-Assets Regulation (MiCA).
European Commission: Regulation (EU) 2023/606 - ELTIF 2.0.
European Commission: Regulation (EU) 2023/1114 - MiCA.
SEC: Statement on the Approval of Spot Bitcoin Exchange-Traded Products, Gary Gensler, January 2024.
Fitch Ratings: U.S. Private Credit Default Rate 5.8% in January 2026, February 2026.
McKinsey & Company: Global Private Markets Report 2026 - Private Equity.
Morgan Stanley: Private Credit Outlook and Considerations.
Reuters / U.S. News: BlackRock limits withdrawals at private credit fund, March 2026.
Wealth Management: Private Credit Confronts the Limitations of the Semi-Liquid Label, March 2026.
Hamilton Lane: Private Markets Access ELTIF launch, March 2025.
BNP Paribas Securities Services: ELTIF 2.0 - new opportunities for European AIFs.
Euroclear: ELTIF 2.0 regulation unlocks access to private markets.
Yale Investments Office: The Yale Endowment Report.
The information and sources presented are for illustrative purposes only. While obtained from sources deemed reliable, their accuracy cannot be guaranteed.
Alternative investments are asset classes that are neither listed equities nor traditional fixed-income instruments. Key categories include real estate and real assets, private equity, private credit, hedge funds, structured products, commodities and cryptoassets. They do not form a homogeneous group; there are significant differences between the categories in sources of return, risk and liquidity.
Most high-quality PE and private credit funds require professional investor status. With a portfolio below 500 000 euros, the practical options are real estate funds, listed PE ETFs and crowdfunding platforms - all materially different from direct fund investments.
ELTIF 2.0 is the EU's revised long-term investment fund regulation, which entered into force in January 2024. It removed the 10 000 euro minimum investment threshold and the portfolio restriction, opening access to institutional funds to a broader group of investors. Practical availability in Finland is improving, but gradually.
Every sale, exchange into another cryptoasset or use as a means of payment is a separate taxable event. Capital gains are taxed as capital income (30% / 34%). Records must be kept in order from the outset.
CASP (Crypto Asset Service Provider) is an authorisation for cryptoasset services under the EU's MiCA regulation. In Finland, the authorisation is granted by Finanssivalvonta. The authorisation means ongoing regulatory supervision, segregation of client assets from the company's own assets, and strict cybersecurity requirements. MiCA does not eliminate the market and technology risks associated with cryptoassets.
Liquidity risk means that an investment cannot be converted into cash quickly without a significant loss in value. A semi-liquid structure offers limited redemption opportunities, but these can be suspended, as seen in Finnish real estate funds in 2022-2025 and U.S. private credit funds in 2026.
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