GMO's argument doesn't go nearly far enough, at least as it related to private equity (buyout funds, venture capital funds) and private equity real estate.
(1) The argument that "alternative assets offer low correlations" is generally FALSE. The main reason that unlisted assets--private equity (buyout funds and venture capital) and private real estate--claim to have low correlations with listed assets is that they make up their return data. Their valuations lag behind true (market) values, and their valuations are smoothed relative to true (market) values. Of course any made-up data that incorporates lag and smoothing will have a low correlation with true data. Investment managers can report low correlations, but investors don't benefit from it.. That's because investors can't make use of their assets at the made-up valuations--they can only make use of their assets by accepting true (market) values.
The article focuses on the question of whether correlations have risen. They did: but, at least for some assets (including listed U.S. equity REITs, the asset with which I'm most familiar), have already come all the way back down to their normal levels before the liquidity crisis.
(2) The argument that "alternative assets offer pure alpha/great return potential" is generally FALSE. There is a great deal of independent academic research (see http://www.slideshare.net/casebrad/bibliography-on-private-equity-perfo… and http://www.slideshare.net/casebrad/bibliography-on-public-and-private-r… for bibliographies) showing that the returns of private equity (buyouts and especially venture capital) and private real estate are generally much worse than the returns of comparable listed assets. In general, private equity is a dog of an investment strategy that depends on lack of transparency to suck in uninformed investors.
(3) The argument that "alternative assets are protection in down markets" is generally FALSE. This is closely related to the false argument about low correlations: unlisted assets don't report their actual losses during down markets because they don't have to: they use made-up data.
(4) The argument that "alternative assets offer absolute returns" is generally FALSE. Most private equity investments are simply public equity investments with higher leverage, lack of transparency, high fees, and made-up data. It's worth emphasizing that the fees and expenses associated with private equity investing (and hedge funds) are very poorly aligned with the interests of investors.