Video:Diversify with alternatives
Hedge funds
The environment of low stock correlation and high return dispersion—drivers of strong hedge fund returns since 2010—remains in place and should support performance in 2026. We believe that equity market neutral strategies can enhance portfolios due to their ability to generate returns in both rising and falling markets, while limiting directional exposure. We also see appeal in global macro and multi-strategy funds, given their flexibility to benefit from economic trends and risks like persistent inflation, trade tensions, or debt sustainability concerns. Meanwhile, the resurgence in M&A activity is creating fresh opportunities for merger arbitrage strategies.
Private equity
With central banks easing and fiscal policy remaining pro-growth, we expect increased distributions and exits, supporting private equity returns. In a world of lower rates and high public market valuations, we focus on middle-market, value-based buyouts, complex carveouts, and secondary funds, with a preference for regional diversification in Europe and Asia to mitigate local risks. The supportive macro backdrop and favorable liquidity conditions should help private equity managers navigate elevated valuations and concentrated market leadership.
Select direct lending
Private credit headlines highlight the need for quality and selectivity. While tighter spreads and Fed rate cuts have moderated returns, we believe direct lending still offers attractive income and diversification for underallocated investors. Risks are mainly contained to lower-middle-market borrowers; senior, sponsor-backed loans to larger, less cyclical companies remain resilient, in our view. Careful sizing and manager selection are essential, and those with outsized allocations should consider diversifying into other alternative investments.
Private real estate and infrastructure
Reliable, inflation-linked cash flows and exposure to structural trends make these appealing portfolio assets in our view. We favor digital infrastructure, renewables, logistics, living sectors, and data centers, with a preference for core and core-plus assets that derive a greater share of returns from income rather than capital appreciation.
