As traditional 60/40 portfolios struggle in an era of persistent inflation and market volatility, institutional and private investors are turning to alternative assets as their salvation. Jerry Pascucci and Johannes Roth examine the implications of this structural shift.
The mahogany-paneled boardrooms of pension funds and endowments have long harbored secrets that retail investors could only dream of accessing. Private equity deals with the potential for eye-watering returns; infrastructure investments that generated consistent income regardless of market turmoil; and real estate ventures that transformed skylines and portfolios alike. For decades, these alternative investments were restricted to institutional giants with nine-figure minimums and armies of due-diligence experts. That world is anachronistic.
Today, as traditional investment strategies buckle under the weight of persistent inflation, elevated interest rates, and geopolitical uncertainty, a seismic shift is reshaping the very foundations of investing. An upending of portfolio construction convention is also playing a part. The venerable 60/40 split between stocks and bonds – the bedrock of investment wisdom for generations – has been called into question for some time.
Investors want uncorrelated returns, as well as shelter from unpredictable financial markets. And with it, the lines are starting to blur between institutional and private wealth portfolios.
Many sophisticated private investors want to allocate capital the same way as pension funds. The transformation began quietly, almost imperceptibly, in the aftermath of the 2008 financial crisis. As central banks flooded markets with liquidity and drove interest rates to historic lows, institutional investors found themselves forced to venture beyond traditional asset classes in search of yield. Private markets, once a niche corner of finance, began attracting unprecedented capital flows.
The numbers don’t lie. Private market assets under management have grown substantially over the past decade and a half, reaching approximately USD 15.1 trillion at the end of 2024.1
More telling, the composition of that capital has shifted dramatically. Whereas pension funds and sovereign wealth funds once dominated, high-net-worth individuals and family offices now represent the fastest-growing segment.
Figure 1: With 15.1 USD trillion in AuM, global private markets are hard to ignore
Figure 1: With 15.1 USD trillion in AuM, global private markets are hard to ignore
Global private markets assets under management, in USD trillion
As public markets have become more correlated and volatile, investors of all shapes and sizes have realized they need exposure to return streams that aren’t dependent on the whims of daily market movements. However, access alone isn’t enough. As the market matures, the focus is shifting from simply having alternative products to having best-in-class solutions. The fiduciary bar is rising, demanding greater transparency, improved governance, and more sophisticated risk management.
The private capital revolution
Take private equity. An influx of capital has allowed companies to stay private longer, shifting much of the value creation from public to private markets.
In 1980, there were approximately 4,658 publicly traded companies in the United States. By the end of 2024, despite significant economic growth, there were only 3,804 domestic operating companies listed on major US exchanges – a decline of approximately 18%.2 Many companies that might previously have gone public are choosing to remain private, funded by private equity and venture capital. Companies can now scale to billions in revenue while remaining private.
Figure 2: The target universe is expanding, as more companies choose to stay private for longer
Figure 2: The target universe is expanding, as more companies choose to stay private for longer
Number of US private equity-backed companies versus domestic listed firms on NYSE and Nasdaq
But this success has created issues. The slowdown in mergers and acquisitions and initial public offerings has extended holding periods, making liquidity management a critical issue for managers and investors. The traditional private equity model of buying, improving, and selling companies within three to five years is being tested.
True to form, the industry is innovating in response. Secondary markets, once a niche corner of private equity, have exploded in size and sophistication. Continuation funds – vehicles that allow general partners to hold onto their best assets longer while providing liquidity to existing investors – have become a core part of the toolkit.
Indeed, secondaries are now a core strategy. The overall evolution is also driving greater specialization. Rather than pursuing broad buyout strategies, many firms are focusing on specific sectors or strategies where they can develop deep expertise and sustainable competitive advantages. Healthcare, technology, and infrastructure have emerged as particular areas of focus.
Switching the lens from equity to debt, a post-financial crisis induced disintermediation of traditional banking has created space for alternative lenders and investors to play an increasingly central role.
Corporate lending is a case in point. For decades, banks were the primary source of credit for mid-market companies. Regulatory changes following the 2008 crisis, including capital requirements that made lending to smaller, sub-investment grade companies less attractive, created an opportunity for private lenders.
Indeed, private credit expanded to approximately USD 1.7 trillion at the end of 2024, up from approximately USD 1 trillion in 2020.3 The asset class has grown roughly ten times larger than it was in 2009 and is estimated to reach USD 2.8 trillion by 2029.4 Private credit now accounts for more than 40% of global new issuance, up from less than 10% just a decade ago.
Rapid growth has brought challenges. As more capital floods the market, lending standards have come under scrutiny. Higher interest rates are testing borrowers’ ability to service debt, while regulators are paying increasing attention to a sector that largely operates outside traditional oversight.4
Specialized lenders are emerging in niche areas like litigation finance, intellectual property lending, and asset-based credit. Direct lenders are moving up-market, competing with banks for larger deals, while others are moving down-market, providing capital to smaller businesses traditionally served by regional banks.
The megatrend opportunity: AI, energy transition and infrastructure upgrades
If private credit represents private capital’s expansion into territory traditionally dominated by banks, private equity represents its maturation as an alternative to public markets. Democratization has opened the door to a wave of new investors. However, the convergence of global megatrends is also creating compelling investment opportunities. Put another way, private capital isn't just providing diversification for investment portfolios; it is becoming essential infrastructure for the economy of tomorrow.
The AI infrastructure supercycle
Nowhere is this more evident than in the artificial intelligence (AI) boom currently sweeping through entire industries. Behind the headlines about ChatGPT and autonomous vehicles lies a less glamorous yet potentially more lucrative reality: the massive infrastructure build-out required to power the AI economy.
Training a single large language model can require the computing power of thousands of specialized chips running continuously for months. The electricity demands are enormous, with some estimates suggesting AI could account for a significant portion of incremental electricity demand growth in the coming years. This has triggered what industry insiders describe as an “infrastructure supercycle.”
In this sense, the AI revolution is really an infrastructure story in disguise. Every query, calculation, or AI-powered recommendation requires massive computing power. This means data centers, and lots of them. It is the physical backbone for the digital economy.
The result is a blurring of traditional asset class boundaries. What once might have been considered real estate investments – data centers and server farms – now function more like critical infrastructure, generating stable, long-term returns with limited correlation to traditional markets. Hyperscale data centers, the massive facilities that power cloud computing and AI applications, are being viewed as a distinct asset class altogether.
Investment will have to keep pace. McKinsey estimate that capital expenditure required to support AI-related data center capacity demand could range from USD 3 tln to USD 8 tln.5 Unlike traditional real estate, these facilities often come with built-in tenants – tech giants like Microsoft, Amazon, and Alphabet – locked into long-term leases that provide predictable cash flows.
Figure 3: Big 4 Capex has been revised up c.30-40% in YTD-25
Figure 3: Big 4 Capex has been revised up c.30-40% in YTD-25
Consensus forecast: Big 4 Calendar Year 2025 and 2026 Capital Expenditure firms on NYSE and Nasdaq
The energy transition imperative
Meanwhile, the shift away from fossil fuels toward renewable energy sources is creating investment opportunities on a scale not seen since the Industrial Revolution. The International Energy Agency estimates that achieving net-zero emissions by 2050 will require USD 4 trillion in annual investment through 2030.6 This is roughly double the current level. Governments and public markets alone cannot provide this capital. Private investment will be essential.
It is also one of the few asset classes where demand is structural and policy aligned. Whether renewable energy generation, battery storage, smart grids, or green hydrogen, the investment opportunity is likely to run for decades.
Figure 4: Renewable energy investment is expected to double by 2030
Figure 4: Renewable energy investment is expected to double by 2030
Global spending on renewable energy infrastructure in USD bn
Figure 5: Renewables now make up 35% of the energy mix
Figure 5: Renewables now make up 35% of the energy mix
Renewable energy share in global final energy consumption
The investment landscape is also evolving rapidly beyond traditional wind and solar projects. Advanced battery storage systems that stabilize electrical grids are attracting billions in private capital. And green hydrogen production, still in its infancy, is drawing investment from both infrastructure funds and private equity firms betting on its potential to decarbonize heavy industry.
Potentially even more intriguing are the second-order opportunities. As electric vehicles achieve mass adoption, private investors are funding networks of charging stations, battery recycling facilities, and the rare earth mining operations that supply critical materials. The energy transition essentially requires a complete reimagining of how energy is produced, stored, and consumed.
Infrastructure in transition
Beyond this, a broader infrastructure renaissance is underway. Across developed markets, aging infrastructure systems – many built in the post-World War II boom – are reaching the end of their useful lives just as population growth and urbanization are placing new demands on these systems.
Figure 6: By 2040, cumulative infrastructure investment could reach over USD 100 trillion
Figure 6: By 2040, cumulative infrastructure investment could reach over USD 100 trillion
Total infrastructure investment projected through 2040, by sector (in USD tr)
Cumulative global infrastructure investment could reach over USD 100 trillion by 2040. Indeed, the American Society of Civil Engineers estimates that the United States alone needs USD 3.6 trillion in infrastructure investment over the next decade. 7 Europe faces similar challenges, with estimates suggesting EUR 500 billion in annual investment needs through 2030. Asia's infrastructure gap is even more pronounced, with the Asian Development Bank projecting needs of USD 1.7 trillion annually.8
Traditional public funding mechanisms are proving inadequate. Government budgets, constrained by aging populations and rising debt levels, cannot meet these needs alone.
Private capital is stepping in to fill the gap. This represents a generational shift in how infrastructure is funded and operated. Indeed, private capital isn’t merely providing funding; with it comes the operational expertise, technological innovation, and long-term thinking that the public sector often struggles to deliver.
The opportunities span traditional infrastructure (i.e., roads, bridges, airports) as well as new digital infrastructure like fiber optic networks and 5G systems. Increasingly, investors are focusing on mid-market opportunities where there is typically less competition and better pricing than with the mega-sized deals. Water treatment facilities, waste management systems, and transportation assets are all also attracting significant private investment.
Investment vehicle innovation
As alternative investments have matured and democratized, the vehicles through which investors access these strategies have undergone their own transformation. The traditional model – whereby institutional investors committed capital to closed-end funds with 10-year lock-ups – is giving way to a more diverse ecosystem designed to meet the varying liquidity, timing, and capital needs of different investor types.
This reflects a fundamental shift in thinking. Whereas alternatives were once viewed as illiquid investments requiring patient capital, innovative structures are now providing optionality around timing, liquidity, and co-investment opportunities.
Evergreen structures
Perhaps the most significant innovation in alternative investment access has been the rise of evergreen or perpetual structures. These vehicles, which allow for continuous subscriptions and periodic redemptions, are democratizing access to strategies that were previously available only through traditional closed-end funds. Evergreen structures help solve multiple problems simultaneously as they can eliminate the timing risk inherent in vintage year investing, provide some liquidity , and allow smaller investors to gain exposure without the complexity of capital calls and distributions.
The numbers reflect growing adoption. Although sources vary, recent analysis from Morningstar placed assets in semi-liquid evergreen funds at USD 450 bn, increasing 16% from the end of 2024 and 77% since the end of 2022.9
Vehicle coverage spans the full spectrum of alternative strategies. In private equity, evergreen funds allow investors to gain exposure to a diversified portfolio of companies without waiting for traditional fund deployment cycles. Private credit evergreens provide exposure to floating-rate loans with quarterly or semi-annual liquidity options. Real estate evergreens offer access to diversified property portfolios with more frequent valuation updates and liquidity opportunities.
However, the structures are not without complexity. Managing liquidity in inherently illiquid assets requires sophisticated cash management and often involves maintaining liquidity buffers that can drag on returns. Some vehicles have implemented gates or queues during periods of high redemption demand, highlighting the challenges of providing liquidity in illiquid markets.
Co-investment platforms
For larger investors seeking greater control and potentially higher returns, co-investment platforms could be a compelling alternative. These structures allow investors to invest alongside general partners in specific deals.
The appeal is multifaceted. Co-investments typically come with lower fee structures, often management fees without performance fees. They provide transparency into specific investments that commingled funds cannot match and allow investors to express views on sectors, geographies, or deal types.
According to Chronograph, many Limited Partners reserve as much as 15-30% of their total private market allocation for private equity co-investments.10 Private debt co-investments are also gaining traction, allowing investors to participate directly in larger loans.
Success in co-investments requires significant due diligence and deal evaluation expertise. Many investors are therefore building dedicated co-investment teams or partnering with specialized platforms that can source, evaluate, and monitor these opportunities. The best co-investment platforms provide not just access but also the analytical framework to evaluate opportunities effectively.
Multi-manager platforms
For investors seeking diversification across multiple managers and strategies, multi-manager platforms have become increasingly sophisticated.
The modern multi-manager platform goes far beyond traditional fund-of-funds models. They often provide access to managers who are closed to new investors, negotiate better terms through scale, and offer strategic asset allocation across different strategies. Some also provide co-investment opportunities and secondary market access within the same structure.
This can be particularly valuable for investors seeking exposure to emerging managers or niche strategies where individual due diligence might be prohibitive.
Separately managed accounts
Finally, separately managed accounts (SMAs) offer the ultimate in customization while maintaining the benefits of professional management. They allow investors to specify investment criteria, exclude certain sectors or geographies, and maintain transparency into underlying holdings.
SMAs can be particularly popular for ESG-focused investing, where investors want to ensure alignment with specific sustainability criteria. They also appeal to investors with existing exposure to certain sectors or strategies and want to avoid concentration risk. To help broaden access, “club” SMAs are emerging, where multiple investors with similar objectives pool together to achieve the scale necessary for customization.
AI disruption
Artificial intelligence has captured headlines for its potential to transform every industry. However, its impact on private markets investing is only beginning to be understood. Ultimately, AI has the potential to fundamentally restructure the end-to-end investment process; from deal sourcing and due diligence to portfolio monitoring and exit planning.
The transformation is taking place on multiple levels simultaneously. At the macro level, AI is enabling the processing of vast amounts of unstructured data that was previously impossible to analyze systematically. At the operational level, it is automating routine tasks and freeing up human capital for higher-value activities. And at the strategic level, it is providing new insights that are changing how investors think about risk, return, and competitive advantage.
Deal sourcing and origination
Traditionally, deal sourcing in private markets has been relationship-driven, with the best opportunities often flowing through established networks of intermediaries, management teams, and co-investors. AI is democratizing this process by enabling systematic scanning of potential investment targets across vast datasets.
Machine learning algorithms can now analyze millions of companies simultaneously, identifying potential acquisition targets based on financial metrics, growth patterns, management changes, and even social media sentiment. These systems can process SEC filings, patent applications, hiring patterns, and competitive intelligence to identify companies that might be ripe for investment before they formally come to market.
In private credit, AI is revolutionizing underwriting by analyzing alternative data sources including cash flow patterns, supplier relationships, and even satellite imagery of business activity. Lenders can now assess credit risk for companies with limited financial history by analyzing their digital footprint, transaction patterns, and operational metrics in real-time.
For real estate, AI systems are analyzing everything from foot-traffic patterns and demographic shifts to zoning changes and development permits to identify properties or markets with investment potential. These systems can process drone imagery, satellite data, and local economic indicators to assess property values and investment opportunities with unprecedented precision.
Due diligence
Natural language processing systems are particularly powerful in identifying patterns across large document sets. In merger and acquisition due diligence, AI can analyze customer contracts to identify concentration risks, churn patterns, and pricing trends. In private credit, AI can review loan documentation to identify covenant violations or unusual terms that might indicate higher risk. More broadly, they can review thousands of legal documents, contracts, and regulatory filings in hours rather than weeks, identifying potential issues and red flags that might take human reviewers much longer to uncover.
This is not just about simple document review, though. AI systems are now capable of conducting financial analysis, building cash flow models, and even assessing management team effectiveness by analyzing communication patterns, decision-making history, and operational metrics.
Portfolio monitoring and risk management
Once investments are made, AI is also transforming how portfolio companies are monitored and supported. Rather than relying on quarterly reports and board meetings, AI systems can provide real-time insights into portfolio company performance using alternative data sources.
However, perhaps the most sophisticated application of AI in private markets is in valuation and risk management. Traditional valuation methods for private companies rely heavily on comparable public company analysis and discounted cash flow models. AI is enabling more sophisticated approaches that incorporate a much broader range of data sources and valuation methodologies.
Machine learning models can analyze the relationship between private company characteristics and eventual exit valuations, providing more accurate interim valuations based on operational metrics rather than just financial data. These models can account for factors like management team quality, competitive positioning, and market dynamics that traditional valuation models struggle to quantify.
In terms of risk management, AI systems can identify correlation patterns and systemic risks that might not be apparent through traditional analysis. By analyzing large portfolios of investments simultaneously, these systems can identify potential concentration risks, market timing issues, and correlation patterns that could impact overall portfolio performance.
The revolution is still in its early stages, but the implications are profound. As AI capabilities continue to advance, the competitive advantage will increasingly belong to firms that can effectively integrate these technologies into their investment processes while maintaining the human judgment and relationship skills that remain critical in private markets investing.
The path ahead
For investors, the message should be clear. The era when alternatives were a peripheral consideration is over. In this new reality, alternatives are becoming central to portfolio construction, essential for meeting the return and risk objectives that traditional assets alone cannot provide.
The democratization of access opened the door; megatrends are creating the opportunities; and AI disruption is providing the tools. What remains is the discipline to navigate this new landscape successfully, preserving the value of the risk and illiquidity premia that define these asset classes while adapting to an increasingly competitive and scrutinized environment.
As the industry matures, the abundance of capital has inflated valuations and competition for the best opportunities is undoubtedly intensifying. But maturation also brings opportunities. The real value of alternatives isn’t just diversification by asset class; it is about the differentiated return profile they provide. With the great portfolio reset underway, the real question for investors is not whether to participate. It is how to do so thoughtfully, strategically, and with the long-term perspective that alternatives require.
1 Note: Closed-ended funds only. Excludes fund-of-funds and secondaries to avoid double counting. Source: PitchBook, Preqin, UBS September 2025.
2 Number of Domestic Companies Listed on Major U.S. Exchanges, 1980-2024, Jay R. Ritter, University of Florida Warrington College of Business, 2024. Based on CRSP data. Available at: https://site.warrington.ufl.edu/ritter/files/number-of-listed-firms-on-US-exchanges.pdf
3 Note: Closed-ended funds only. Excludes fund-of-funds and secondaries to avoid double counting. Source: PitchBook, Preqin, UBS September 2025. Ibid.
4 The cost of compute: A USD 7 trillion race to scale data centers, McKinsey & Company, 28 Apr, 2025.
5 International Energy Agency, World Energy Outlook and Net Zero Roadmap reports.
6 American Society of Civil Engineers, Infrastructure Report Card, 2025. Asian Development Bank, Meeting Asia's Infrastructure Needs reports
7 Evergreen fund assets hit USD 450bn, Citywire. Sep 29, 2025
8 Trends Shaping the Private Equity Co-Investment Landscape, Chronograph. Apr 9, 2025.
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