Real estate assets and other private investments have never been more accessible to clients. That might not be a good thing.

The recent meltdown of the alternative asset manager Yieldstreet, four of whose real estate funds resulted in 100% losses for investors, according to CNBC, highlights the risks of bringing private investments to Main Street. (More than 20 other Yieldstreet funds are currently on a watchlist.) The losses come as an ongoing democratization of private markets — a $13 trillion industry expected to grow to $20 trillion by 2030, according to BlackRock — continues to make previously exclusive options available to average investors. President Donald Trump even signed an executive order earlier this month opening them to 401(k)s. But these investments come with potential risks.

“Historically, this is part of the cycle of Main Street shunning the staid, the old, the used ideas,” said Alex Morris, the CEO of F/m Investments. “And Main Street, for a little while, loves it. Until there’s a blowup.”

Taking the Long View

Private credit and alternatives-focused funds have grown in popularity of late, and one way asset managers bring these investments to retail investors is through ETFs. The index fund versions of these funds, which invest in assets including real estate, in the case of Yieldstreet, aren’t necessarily a bad bet — so long as investors take a “long-term view,” Morris said. “ETFs thrive on liquidity, so taking this inherently illiquid structure… and saying, ‘We’re going to mark this to market several thousand times a day,’ is a little peculiar,” he added. “They can’t go and make more houses in the same way you can with shares of SPY.”

But although private credit and alternatives-focused ETFs have grown in popularity of late, some advisors remain wary. State Street’s private credit ETF, PRIV, has since grown to $145 million in assets, but it launched in February with just $50 million. Other funds capitalizing on the proliferation of private investments include:

• The VanEck BDC Income ETF (BIZD), which owns companies that lend to private middle market companies and has $1.6 billion in assets.
• The BondBloxx Private Credit CLO ETF (PCMM), which invests in private credit CLOs and has $140 million in assets.

Used Goods. Another concern, particularly for pre-retirees, is ensuring portfolios liquidate evenly over time. “It’s unlikely someone constructing their own portfolio can solve the basic problem of timing their withdrawals to last their lifetime, much less creating an optimal portfolio from commercial products,” said Teresa Ghilarducci, an economist at The New School. “Even a target date fund with private equity will probably not be low-fee enough for an ordinary, single investor.”

For Morris, the most troubling part is that exclusive deals usually remain exclusive. “Main Street is getting Wall Street’s recycled deals — the most mature, least alpha-generating ones,” he said. “They say that’s because they have less risk associated with them, but folks are generally not buying these because they want less risk… They’re buying because they want that alpha.”

What’s the dealio?

The first half of this year may have left clients’ heads spinning from tariffs and geopolitical uncertainty, but it didn’t slow dealmaking. In fact, the number of acquisitions accelerated, with deals among RIAs hitting a record high of 132, covering nearly $183 billion in purchased client assets, according to Fidelity. That’s 25% more transactions than the same period last year, though purchased assets fell 54%.

It’s the strongest start to a year since Fidelity began tracking in 2015, and the industry’s aging advisor base remains a key driver. “Talent always bubbles up to the top of conversations we have with leaders of strategic acquirer firms, and finding great talent in a desired geographic area is even more of a win,” said Laura Delaney McElroy, vice president of business consulting at Fidelity

Jump In, Water’s Fine

The buyer pool is widening, with 16 first-time acquirers in the six months through June. Only one of their deals was in-state, showing most are looking beyond local markets. “More firms are seeking to expand their product offering to meet increased client demand, tap into talent and grow their firms beyond what they could natively achieve within their four walls,” McElroy told Advisor Upside.

Over the past 12 months, just 20 acquiring firms accounted for 60% of deals and 41% of purchased assets, the report found:

• Focus Partners Wealth led the cohort with 16 purchases totalling $54 billion in assets, followed by Merit Financial Advisors with 13 acquisitions totaling $4.7 billion in assets.
• Wealth Enhancement and Mercer Advisors each made 11 deals, totalling $11.4 billion and $7.6 billion in purchased assets, respectively.

All of the firms were backed by private equity groups, and PE was behind 86% of H1 transactions and 91% of purchased assets.

More, More, More. RIA transactions are on track to surpass the 233-deal record set in 2024. Looking ahead, Fidelity notes there may be supply and demand setbacks as there are more buyers than sellers right now. However, there’s still plenty of potential for even more deals in the future. “As an industry, we’re young, highly fragmented, and we’re well behind other mature industries,” McElroy said. “There are more RIA firms formed each year than are being acquired — a replenishment effect.”

Give the little guy a chance.

Funds tracking the Mag 7, the S&P 500 or any large cap companies are bedrocks in many clients’ portfolios, thanks to their relatively low risk and stable returns over long periods. Meanwhile, many advisors and clients have moved away from small cap stocks and funds that track them due to less-than-stellar returns for more than a decade. However, large cap stocks are currently overvalued by 2%, while small caps are undervalued by 4.6%, according to Morningstar analysts. That could set up a classic “buy low, sell high” investing opportunity.

“Generally speaking, high returns are followed by things with low prices,” said Gregg Fisher, founder of asset management firm Quent Capital. “That’s not rocket science, but it can be hard to execute on.”

Aim Small, Miss Small

Historically, small cap stocks have had the edge over large caps, but they began to lag over the past 10 to 15 years, per Morningstar. So far in 2025, they have significantly underperformed for two reasons: Not getting tailwinds from the AI boom and not being able to roll with the macroeconomic punches as well as their larger cap counterparts. “Small cap stocks tend to be more concentrated on old economy sectors like consumer cyclicals, financials, real estate and industrials,” said Amy Arnott, Morningstar portfolio strategist, adding that small cap companies are also more sensitive to economic weakness.

As a result, small cap mutual funds have had nearly $35 billion in outflows year-to-date, while small cap ETFs are down roughly $17 billion in assets, according to Morningstar data. Out of the five top-performing small cap funds, only two have experienced inflows:

• The Aegis Value Fund Class I mutual fund (AVALX) is the best performer, up nearly 30% this year, and it has taken in more than $140 million in inflows, per Morningstar. The 1290 Essex Small Cap Growth Fund (ESCJX) is up 10% with about $3.5 million in inflows.
• Meanwhile, the Needham Aggressive Growth Fund (NEAGX), the Invesco WilderHill Clean Energy ETF (PBW) and the Jacob Small Cap Growth Fund (JSCGX) are all up more than 12%, but have lost about $50 million in assets cumulatively.

“What we’re seeing is totally normal,” Fisher told Advisor Upside. “When returns are bad over 10 years, you get out, but the formula should be ‘bad 10 years, get in.’ Buying businesses with low prices relative to their fundamentals should be a reasonable thing to do.”