Greycourt exec: Here's what's out, and what's in

Can liquid alternatives perform?

If you're worth millions or billions of dollars, you hire smart people to help invest your assets—unless you're a neophyte trusting it all to your third cousin creating the next bitcoin. So what advice are those elite advisors giving their wealthy clients? recently interviewed Greg Curtis, the chairman of wealth advisory firm Greycourt, about just that. Founded in 1988 by Curtis, the Pittsburgh-based group serves wealthy families and select institutions in the U.S. and internationally representing total assets of approximately $10 billion. Those clients have investable assets ranging from $25 million to more than $1 billion.

CNBC: What's your outlook on the markets for 2014?

Curtis: I think the markets in 2014 will be much more interesting from the perspective of a professional investor. In 2013 every stock went straight up, with very little differentiation between good companies and bad companies, or between sound economies and unsound ones. As Fed stimulus eases off and interesting geopolitical events play out—such as China continuing to slow, major changes in the Middle East regarding Iran and Egypt, continued improvement in economic growth globally—differentiation among stocks will increase. Simply buying index funds will no longer be a useful strategy.

Any particular sectors you're telling clients to get in?

Most of the sectors we like these days are best accessed via hedge and private equity-like strategies, which makes them difficult for non-accredited investors. I am thinking of distressed assets in Europe, real estate lending, long/short strategies in Japan. We are also looking at closed-end bond funds, although most of the the discounts aren't yet compelling.

(Read more: 'No bubble troubles' in stocks, Goldman says)

What's overvalued? What are you avoiding?

US small-cap is extremely overvalued and we are significantly under our target allocations to that sector. Long real estate (real estate investment trusts, real estate operating companies) isn't interesting, nor are most government bonds. In the hedge sector we are reducing our exposure to credit strategies. In private equity, we are avoiding the very large buyout funds, as we have been doing for some years.