Alternative investments are often defined not by what they are, but by what they are not.  That is, an alternative investment is a position in something other than a long position in either equity or debt.  Generally speaking, the alternative investment markets encompass  hedge funds, venture capital and private equity, real estate, and managed futures.  Alternative investment securities include positions that define investment strategies within these broad groupings.

As defined, alternative assets are a subset of existing asset classes.  For example, a hedge fund may be organized as a private company that takes both long and short positions in equity securities, seeking to expand the investment opportunity set available to long-only equity managers.  These opportunities include capital appreciation, hedging, and diversification, among others.

Other distinguishing characteristics of alternative investments are the regulations that surround the positions that comprise these strategies, and the way that the gains and losses of these positions are taxed.