Alternative opportunities: 2026 outlook for private credit and equity, real assets, and hedge funds

Due to the combined impact of high stock valuations and the elevated cost of financing, we remain neutral on how we’re allocating risk within our alternatives portfolio. Looking ahead to 2026, we’re favoring private debt, real assets, and hedged strategies versus private equity. Here are key takeaways from each asset class. (Read the complete Alternative opportunities 2026 outlook.)

Private credit: Overweight as spreads begin to widen in public markets

We’re overweight direct lending as all-in yields remain attractive for senior positioning, especially in the core middle market. Significant private equity dry powder and a backlog of exits point to a continuation of improved deal activity. We’re also overweight real estate credit, given high levels of current income and a recovering real estate equity market.

Private equity (PE): Underweight due to moderating valuations

We remain underweight private equity. Beneath the surface, we’re beginning to normalize our views on leveraged buyouts versus growth strategies. The reopening of capital markets and aging of dry powder led to a rapid deployment of PE capital in the second half of 2025.

Real assets: Slight overweight as valuations approach trough 

We’re slightly increasing our exposure to real estate as our conviction that valuations have bottomed is beginning to firm. We’re convinced that the recovery in the real estate equity market is well underway. Challenges such as tight cap rates and potential weakness in certain sectors persist, however.

Hedge funds: Overweight due to arbitrage spread levels and central bank easing cycle

Hedge funds with lower betas to market risk may be a valuable alternative within a portfolio, in our view. We continue to find hedge funds attractive; however, it’s moderating as capital markets activity picks up and the outlook for stock markets improves.

Read the complete Alternative opportunities 2026 outlook.