How to Start Investing in Alternatives

A third of UK investors are considering alternative investments, yet 60% find it challenging to know where to start. This guide provides a practical roadmap for taking your first steps into private markets.

The good news: you don't need to be a millionaire to begin. Thanks to regulatory evolution and technology, alternative investments are more accessible than ever. However, navigating this landscape requires understanding the rules, platforms, and strategies that apply to your situation.

Until recently, almost all alternative assets were inaccessible to retail investors—largely due to very high minimum investment sums, operational complexity for asset managers, and an unfavourable regulatory environment. Innovative structures, digital distribution models, and regulatory changes have now started to remove these barriers. The question is no longer purely about access—it is about where and how to start.

UK Investor Categories

Access to alternative investments for retail investors is improving, but not all providers and investments are accessible to all investor categories. The Financial Conduct Authority (FCA) classifies investors to ensure appropriate access to higher-risk investments. Almost all alternative investments are considered high-risk by the FCA since they do not undergo the same level of scrutiny as publicly listed investments and are typically illiquid.

Retail Investors: The default category for most individuals. Access is limited to certain regulated products, with enhanced protections and restrictions.

High Net Worth Individuals (HNWI): The most common exempt category. You qualify if you meet either: - Annual income of £100,000 or more, OR - Net assets of £250,000 or more (excluding primary residence and pension)

Sophisticated Investors: Individuals demonstrating investment knowledge and experience. You qualify if, in the last two years, you have: - Worked in private equity or in the provision of finance for SMEs - Been a director of a company with turnover of at least £1 million - Made two or more investments in an unlisted company - Been a member of a business angel syndicate for more than six months

Professional Clients: Institutions and individuals meeting the highest criteria, with minimal regulatory protection.

Why Classification Matters

Your investor classification determines which platforms and products you can access. Many alternative investment opportunities—particularly direct venture capital and private equity—require sophisticated or HNWI status. However, numerous accessible options exist for retail investors through regulated funds and platforms.

One major theme in the FCA regime is that only exempt categories can receive financial promotions about alternative investments. This explains why many people have not heard of most relevant platforms—providers simply cannot undertake broad marketing campaigns.

Suitability Assessment

For most alternative investments, platforms conduct an appropriateness test during onboarding. This ensures you fall within an exempt category and have sufficient knowledge to understand the risks—covering factors like illiquidity, leverage, and currency exposure.

Depending on the asset class and nature of a particular investment, providers use different structures to make alternatives accessible. These methods are based on one or a combination of the following:

Pooling of Funds & Syndication Providers typically pool client funds to make larger investments. For example, 50 investors might invest £20,000 each, allowing the provider to make a £1 million investment in real estate, private equity, or venture capital. Peer-to-peer and crowdinvesting structures are common examples. Alternatively, assets can be pre-funded by the investment company and then sold to a pool of investors (syndication).

Fractionalisation and Tokenisation Rather than pooling funds, an asset can be split into fractions to allow smaller investments. This can be done by placing the asset in a corporate entity or investment fund and selling shares, or increasingly through blockchain-based tokenisation—creating standardised, tradable digital fractions of real assets.

Digital Distribution Large global asset managers typically only target institutional investors with minimum investments from £5 million. New digital providers offer a distribution model that aggregates smaller retail investments into institutional fund tickets, taking over the administrative burden. These platforms need enough investors to reach the fund minimum—requiring highly streamlined, automated processes.

Each provider combines these elements differently. We explore the specifics in our asset class deep dives and independent provider assessments in the Directory.

With over 150 alternative investment platforms operating in the UK, selection can be overwhelming. Here's a framework for evaluation:

Regulatory Status Verify FCA authorisation. Check the Financial Services Register at register.fca.org.uk. Understand what protections apply—some investments are covered by the Financial Services Compensation Scheme (FSCS), others are not. For high-risk investments, it is very important to choose a competent, trustworthy provider.

Asset Class Focus Platforms typically specialise: - **Property crowdfunding**: Kuflink, CapitalRise, British Pearl - **Venture / EIS**: Seedrs, Crowdcube, SyndicateRoom - **Private equity**: Moonfare, Bite Investments (for accredited investors) - **Private credit**: Assetz Capital, Funding Circle, LendInvest - **Diversified alternatives**: Yieldstreet, iCapital (institutional)

Fee Structure Understand all costs: - Platform fees (typically 0.5–2% annually) - Performance fees (often 20% of profits above hurdle) - Entry/exit fees - Underlying fund fees (for fund-of-funds structures)

Minimum Investment Ranges dramatically: - Crowdfunding: £10–£100 - Property platforms: £100–£1,000 - Venture funds: £1,000–£10,000 - Private equity: £10,000–£100,000+

Track Record Examine historical performance, but remember past returns don't guarantee future results. Look for transparency about losses as well as successes.

The UK offers significant tax incentives for certain alternative investments:

Enterprise Investment Scheme (EIS) - **30% income tax relief** on investments up to £1 million per year (£2 million if investing in knowledge-intensive companies) - **Capital gains tax exemption** if shares held for 3+ years - **Loss relief** against income tax if investment fails - **Inheritance tax exemption** after 2 years

Seed Enterprise Investment Scheme (SEIS) - **50% income tax relief** on investments up to £200,000 per year - **Capital gains tax exemption** if shares held for 3+ years - **Capital gains reinvestment relief** (50% exemption when reinvesting gains)

Venture Capital Trusts (VCTs) - **30% income tax relief** on investments up to £200,000 - **Tax-free dividends** - **Tax-free capital gains** if shares held for 5+ years

ISA Wrappers Some alternative investment platforms offer Innovative Finance ISA (IFISA) wrappers for peer-to-peer lending and debt investments, providing tax-free returns within annual ISA limits.

Important Considerations Tax reliefs are designed to compensate for higher risk. Don't invest solely for tax benefits—the underlying investment must be sound. Consult a qualified tax adviser for personal circumstances.