Ironically, this interview adds to the most important misconceptions about alternative assets. (I haven't read the book.) Most alternative assets do NOT actually have "much less volatility than equities." While it's possible to manage alternative assets so that they have lower volatility without lower returns (or higher returns without higher volatility), and therefore higher risk-adjusted returns, that's not what most alternative asset managers do.
Instead, most "alternative asset" strategies are actually nothing more than "alternative measurement" strategies. When an asset is traded on a liquid exchange, it is a Level 1 asset, meaning that active trading reveals its actual value AND its actual volatility. When a private equity manager takes it out of the public market it becomes a Level 3 asset, meaning that its actual value and actual volatility are no longer revealed by active trading. If nothing has changed except its stock exchange listing, then literally nothing has changed about its actual value or its actual volatility--BUT its value and its volatility will be measured inaccurately (by the manager) rather than accurately (by the market). Not only are the returns of Level 3 assets typically measured much more smoothly than they really are, but they're also typically measured with significant lag, which makes them look as though they provide a diversification benefit that they really don't. (I call that "temporal diversification": a false "diversification" that comes only from a temporal lag in measuring returns.)
Most private equity and private real estate investment managers appear to do no more, in practice, than "reduce volatility" by taking their targets from Level 1 to Level 3 assets. "Return enhancement" seems to consist primarily of increasing leverage, which of course would make returns more volatile if they were measured properly. And, of course, leverage helps increase investment "management" fees, which subtracts from the investor's net return. By the way, my statements are supported by substantial empirical evidence.
It's the same with hedge funds: while some may reduce actual volatility using long-short strategies, option overlays, and the like, most simply understate the true volatility of their Level 3 (or Level 2) assets and measure their returns with lag that creates "temporal diversification."
Of course, clients may well appreciate receiving incorrect information that makes the value of their portfolio appear to be more stable than it really is. It's kind of a shame that we can't report the returns of their Level 3 assets with lag and smoothing, just as we can report the returns of their Level 1 assets with lag and smoothing. But understating the true volatility of our clients' assets is very different from producing good risk-adjusted returns.