Hedge funds
In our view, hedge fund strategies like discretionary macro, equity market neutral, and multi-strategy platforms are well placed to earn returns amid volatility and an environment where the performance differences between the top and bottom performing stocks is historically large.
From 1997 to March 2026, discretionary macro traders posted an average annualized return of 7.2% (BarclayHedge Global Macro Index) with volatility of 5.6%—comparable to equities but with less than half the volatility. Meanwhile, the maximum drawdown for macro strategies over the past two decades was 8.1% versus 54.0% for developed market equities (MSCI World).
We also see ongoing opportunities for equity market neutral and multi-strategy funds, which can generate returns in both rising and falling markets as they flexibly position around economic developments.
Investors seeking diversification, ways to limit portfolio losses, and access to unique return opportunities within a broader alternatives or multi-asset portfolio can also consider Asian hedge funds. Underresearch and high levels of retail participation may add to dislocations and dispersion that local hedge fund managers can exploit. While no guarantee of future returns, Asian hedge funds have historically delivered appealing returns. Over the past five years, Asian hedge funds have delivered returns broadly comparable to Asian equities and a global 60/40 portfolio, but with less than half the volatility of both. Relative to global hedge funds, returns and risk-adjusted performance have also been broadly comparable.
We also remain positive on merger arbitrage, though performance may soften if deal activity slows.
Private infrastructure
We believe infrastructure assets are well positioned to deliver resilient, inflation-linked returns throug market cycles. Many infrastructure assets face limited competition and high barriers to entry, so owners can pass through cost increases to users. Infrastructure investments can help hedge against inflation because revenue streams are often tied to CPI, particularly for core strategies operating in regulated or contracted assets. Their income streams may therefore be more robust than other yielding assets to both economic volatility and inflation. Such qualities appear increasingly valuable in the current environment.
Infrastructure’s returns have looked appealing relative to other parts of a well-diversified portfolio. Private infrastructure has delivered annualised returns of around 11% over the past decade, according to data from Cambridge Associates. But infrastructure also behaves differently to other assets, potentially helping steady portfolios. Recent years have seen the asset class’s already low correlations with traditional stocks and bonds fall further. Infrastructure returns display only a 30% correlation with a standard 60/40 portfolio, and even less so with other diversifying assets like gold.
In the current climate, we believe investors who focus on diversified, core/core-plus assets in non-cyclical sectors—prioritizing predictable, inflation-linked cash flows—are best positioned to capture attractive, risk-adjusted returns, while supporting the essential modernization of the global economy.
Core and core-plus infrastructure strategies focus on already mature assets with stable income, potentially more matched to income-focused or balanced investors who want to generate the bulk of returns through yield. When observing historical performance of lower risk, core infrastructure strategies, more than 50% of total returns were derived from income. Investors overallocated to other private assets that pay income (private credit and real estate) could look at these types of assets.
Private equity
Private equity returned around 11% in 2025 (Cambridge Associates, global private equity), underperforming the MSCI AC World and S&P 500 indexes by 12 and 7 percentage points, respectively. But we see signs of potentially improved performance going forward.
Over the 12 months to the end of the first quarter of this year, deal value and deal count grew 26% and 7% year over year, respectively, driven by increased interest in HALO (hard assets with low obsolescence risk) and the energy sector.
While raising fresh capital remains challenging—especially for smaller funds—we expect a gradually improving trend of exits and a resilient US macro environment to support the asset class.
We view managers with a value bias who are active in the middle market or skilled at executing complex transactions as best positioned. Regionally, we recommend diversification beyond the US. Meanwhile, the appeal of the secondary market remains intact—and areas such as tech, health care, energy, and defense present attractive thematic opportunities to capture long-term growth.
Select direct lending
Over a full economic cycle, CIO sees merit in diversified allocations to direct lending, sized to investor individual risk and liquidity preferences. However, in the near term, we expect risk-adjusted returns to moderate.
For those considering adding to direct lending allocations, we continue to urge selectivity with a bias toward higher-quality, larger-cap, and sponsor-led deals and an avoidance of riskier and growth-sensitive underwriting in the lower-middle markets and below.
Risks are rising among lower-middle-market borrowers and 2021-22 vintages, with defaults rising to 2.7% in the first quarter (Proskauer data). Looking ahead, we expect returns to moderate, as spreads remain tight and default rates normalize.
Diversification across private market strategies may help manage risk, but investors must be prepared to tolerate illiquidity and limited transparency in both good and more challenging market conditions.
Investors subject to redemption restrictions in evergreen structures should:
- Review liquidity terms, redemption mechanics, and governance provisions.
- Pay particular attention to manager quality—including liquidity management, communication, and alignment—particularly in stress scenarios.
- Diversify across fund structures and liquidity profiles to help mitigate concentration risk.
- Ensure their own liquidity needs are compatible with their chosen vehicle's design and be prepared for periods of restricted access to capital.
Private real estate
In global direct real estate, we expect total returns to be primarily driven by income, with a smaller contribution from capital gains, as rental growth moderates. We currently see core/core-plus strategies—particularly in logistics, data centers, and living sectors with robust fundamentals—as offering relatively attractive risk-adjusted returns.
Alternatives carry unique risks that investors must be aware of before investing, including limited transparency, potentially high fees, and illiquidity.
