Alternatives Outlook 2026 Income, diversification, and growth
With stock markets hovering near all-time highs, and security concentration within key equity indices at record levels, investors face a landscape marked by elevated valuations of risky assets, high equity/bond correlations, and increased tail risks.
The appetite for alternative assets has grown in recent years as investors have reassessed the merits of the traditional 60/40 stock/bond portfolio. 2022 was a watershed year when equities and fixed income fell together, underscoring the risk of relying exclusively on negative stock/bond correlation for diversification. Gold and other commodities, real assets, and private markets have been among the beneficiaries of investors adopting a broader view of diversification.
In today’s more divergent macro landscape the imperative for alternatives is broader: portfolios must be built to withstand not just volatility, but also regime shifts. Investors need exposures that deliver sustainable income, provide genuine diversification, and give access to growth themes that are reshaping the global economy. Alternatives—spanning private credit, real assets, infrastructure, private equity, and select hedge fund strategies—offer the tools to meet these demands.
Income: Enhancing yield with private credit and real assets
The search for income remains a central theme for investors. With bank lending constrained and public fixed income yields and spreads under pressure, private credit has grown to $2.8 trillion,1 filling the gap left by banks with flexible financing solutions for middle-market companies and merger and acquisition activity. Direct lending and opportunistic strategies have generated attractive total returns relative to public fixed income, and with further Federal Reserve rate cuts expected, the asset class stands out as a robust source of income. Selecting managers with rigorous underwriting and proven track records is essential to navigate credit cycles and avoid idiosyncratic risks.
Income generation is also supported by real assets. Infrastructure investments, underpinned by long-term contracts, essential services, and pricing power, offer resilient cash flows. The momentum in AI-driven capital spending is fueling growth in digital infrastructure, such as data centers, which benefit from secular demand and high barriers to entry. Multifamily real estate, supported by persistent housing shortages and affordability challenges, provides steady rental income and the potential for capital appreciation as markets recover. These exposures not only enhance yield but also offer inflation protection and stability in volatile markets.
Diversification: Building resilience through private assets, gold, and select hedge fund strategies
With fiscal issues coming to the fore, the risk of relying exclusively on stock/bond correlations for diversification has arguably never been greater. Investors are turning to alternative asset classes to provide deliberate diversifiers that help dampen portfolio volatility and hedge against macro, policy, and geopolitical uncertainties. Private equity and private credit, gold, and select hedge fund strategies are well placed in the year ahead to provide structural diversification to a 60/40 portfolio. These assets are less correlated with traditional equities and bonds, and their performance drivers are often linked to secular trends, regulatory changes, and local market dynamics.
Gold, in particular, has proved a powerful diversifier, benefiting from both structural and cyclical tailwinds. Central bank purchases provide price-inelastic demand, while geopolitical tensions, fiscal imbalances, and lingering inflationary concerns reinforce gold’s appeal as a strategic hedge. Its low correlation with equities and resilience in times of uncertainty make it an essential component for portfolio diversification.
Discretionary macro, equity hedge, and risk parity strategies further enhance diversification. Skilled managers can profit from geopolitical shifts, currency moves, and commodity price changes, while risk parity approaches balance exposures across asset classes, mitigating risks from market concentration and regime shifts.
Growth: Unlocking new engines of value
Alternatives are not just about cashflow and risk management—they are central to capturing growth in a world where traditional growth drivers are under pressure or feel like a crowded trade. Infrastructure benefits the most from momentum in AI capital spending, though select private equity and private credit investments may also experience gains. Digital infrastructure represents a powerful growth theme, with AI adoption and cloud expansion fueling significant opportunities in data center development. However, maintaining discipline is important when investing in this rapidly expanding sector, given its high profile and the risk of market overheating. Infrastructure is not only a source of stable income but also a driver of long-term capital appreciation as economies modernize.
Private equity is another strong option in 2026 for accessing growth, having rebounded with a 64.5% increase in IPO activity through mid-October in 2025 compared to 2024 helping investment managers return more capital to investors—these include high-profile names such as Databricks, Klarna, and Shein. The expansion of private equity secondaries helps ease liquidity constraints and gives investors a way to acquire existing stakes in established private equity funds, typically at a later stage in their lifecycle. This approach may mitigate the J-curve effect, reduce "blind pool" risk, and benefit from potentially discounted pricing.
Gold: A strategic hedge in an uncertain environment
Gold’s performance in 2025 has been marked by consolidation within a broader bull cycle, supported by resilient physical demand, robust ETF inflows, and continued central bank purchases. While headlines have focused on the possibility of gold reaching $5,000/oz., a balanced assessment suggests a range of potential outcomes, shaped by both supportive and challenging factors.
Demand drivers
Physical gold demand reached an all-time high in Q3 2025, up 3% year-over-year despite record prices. This strength was driven by ETF investors, bar/coin consumers, and central banks, offsetting weakness in the price-sensitive jewellery sector. Central banks, particularly in emerging markets, remain a structural source of demand, with Q3 purchases rebounding and helping to lift the price floor. Although full-year 2025 purchases may fall short of the recent ~1,000t annual trend, they are still expected to be among the strongest on record. ETF flows have also been robust, with year-to-date inflows already surpassing the 2020 full-year record in US dollar notional terms and nearly matching 2020 in tonnage terms (Figure 2).
Macro and policy context
Gold continues to benefit from macroeconomic uncertainty, fiscal activism, and elevated global debt levels. In this environment, gold serves as a strategic hedge against debt monetization and currency debasement.
The Federal Reserve’s ongoing rate cuts and the expected conclusion of quantitative tightening are likely to lower real interest rates, reducing the opportunity cost of holding gold. As real yields decline, gold’s appeal as a portfolio diversifier and hedge is further enhanced.
Looking ahead
Given the macro tailwinds supporting gold, recent forecasts have upgraded the base case price range for gold to $3,700–4,100/oz. The most bullish scenario would see gold reach $5,000/oz and would require a confluence of Fed easing, persistent ETF inflows, and renewed central bank demand. An additional potential support for gold is that it remains “under-owned” in many portfolios, with ETF holdings and futures positions below historical peaks. Gold could benefit from broader adoption which would reinforce its appeal, driving a virtuous cycle. The main risks are twofold. First, physical demand in Asia-Pacific (the leading gold consumer) could be adversely impacted by record local prices. Second, a resurgence of US growth exceptionalism in 2026—if accompanied by contained inflation and a stronger US dollar—could dampen gold’s appeal as a debasement and FX depreciation hedge. In sum, gold continues to offer diversification and growth potential, but its path will be shaped by the interplay of monetary policy, investor flows, and global economic developments.