You can invest in stocks, bonds and other public assets through ETFs that cost 0.03%—or even less—per year. That’s a piddly 30 cents on every $1,000.

Alternative assets are often hundreds of times more expensive, with expenses that can sometimes exceed 7% annually.

A recent study found that fees can consume up to 26% of all the capital that investors commit at private funds.

Vanguard’s new venture with Blackstone and Wellington seems likely to carry much lower expenses, which are desperately overdue. While extraordinarily skilled managers of private funds might overcome the drag of higher fees, most won’t be able to.

Among the biggest investors in private assets are college and university endowments. Over the 10 years through June 30, 2024, the median endowment earned a 6.7% annualized total return net of fees, according to the 2024 NACUBO-Commonfund Study of Endowments. That was far behind the 12.8% annualized total return of the S&P 500 over the same period—and not much better than an ETF with 60% in stocks and 40% in bonds, which grew at 5.9% annually.

Many of these institutions have privileged access to the world’s best managers of alternative assets—yet barely managed to beat out a boring, dirt-cheap ETF.

As I’ve pointed out before, to invest like Yale University, you need to be like Yale, with a dedicated staff, decades of patience, abundant streams of income and no interim need for cash. Otherwise, your performance is likely to be poor.

At least as they are structured now, alternative funds present another problem for individual investors. When publicly traded stocks and bonds fall, you’d want to sell some of your alternatives so you can rebalance, or restore your stakes in all your holdings to your preset target levels.

Because the valuations of private assets in many alternative funds are updated much less often than daily, they’re likely to be at least temporarily overvalued when public markets plunge. Ideally, you should sell some of your more richly valued alternative holdings and put the proceeds into newly cheapened public assets.

Unfortunately, while alternative funds may allow you to buy daily or monthly, you generally can sell only at specific times—say once a quarter. And the funds can limit redemptions, commonly to 5% of total assets.

“If everybody wants to rebalance at once, you won’t be able to get out,” cautions Kimberly Flynn, president of XA Investments, an alternative-asset manager in Chicago.

You might have to wait months to be able to cash out even a pittance of your private holdings. By then, the public markets may have recovered, precluding you from opportunistically rebalancing.

Finally, the risk in alternative funds is mischaracterized, with frequent emphasis on their supposedly lower volatility. What matters, instead, is the risk that valuations might not be up-to-date or accurate.

Let’s imagine you have two friends who according to their doctors are dangerously overweight.

One weighs herself many times a day and reports that she is continuing to gain weight at an alarming rate—making you fearful about her health and even her longevity.

Your other friend refuses to weigh himself more often than once every 12 weeks. He looks as if he’s put on weight at least as fast as your other friend. So you ask him whether you should worry about his health. He nonchalantly tells you his weight—from three months ago.

Should you believe that the person who hasn’t stood on a scale in months is at less risk than the one who checks every day? Are the changes in their body mass determined by how often each of them stands on a scale?

Likewise, a fund shouldn’t claim to be less volatile merely because it measures the value of its portfolio less often (or because the underlying assets themselves report their values less frequently). The values are still fluctuating even if the fluctuations aren’t reported in real time. Worse, depending on the fund, you might not know exactly who valued the assets or when.

A private fund can be less risky than a public fund if it holds cheap, safe assets that it can readily sell at a fair price. But a private fund isn’t less risky merely because it’s private. If your financial adviser tries to tell you it is, get yourself a new adviser.