By the end of last year, assets under management in global alternative investments hit $6.5 trillion, having grown seven times faster than traditional asset classes over the previous five years. This is according to a new McKinsey & Co. study that predicts this growth represents only the beginning of a new wave of assets moving into alternatives.

"We actually see alternatives becoming the investing mainstream and becoming traditional investments," says Kurt MacAlpine, an associate principal at McKinsey and one of three co-authors of the three-year-long study titled, The Mainstreaming of Alternative Investments. "The accessibility of alternatives has increased considerably.. Virtually all alternative assets that used to be reserved for high-net-worth investors are now available for retail investors."

More than three years ago, MacAlpine says, McKinsey noted this uptick and decided to devote significant time to studying what it means for investors. This new study is part of an ongoing effort to track the increased use of alternatives, he says. The report defines alternatives as asset classes that include hedge funds, private equity and investments in real estate, infrastructure and commodities in a variety of vehicles ranging from limited partnerships, fund of funds, managed accounts, and increasingly, mutual funds and undertakings for collective investment in transferable securities.

McKinsey projects that growth will be fueled by increased allocations by institutional investors and the mainstreaming of alternatives. For example, institutional investors anticipate increasing allocations in alternatives to increase to a simple average of 25% of portfolio assets by the end of this year versus 23% for last year, according to the report. Much of this increase is headed into liquid hedge funds, McKinsey says.

And by 2015, retail alternatives are expected to account for one quarter of retail revenues and a majority of revenue growth.

However, the authors found that most traditional asset managers have not yet made the internal changes required to capture opportunities in the mainstreaming of alternatives.

"Traditional players," the report says, "fully agree with robust alternative growth projections, but acknowledge being unprepared for the shift. Institutions and advisors also assert that asset managers need to ramp up capabilities in risk management and product expertise."