Alternative opportunities: Outlook for private credit, private equity, real assets, and hedge funds.

In the second quarter of 2025, we maintain a neutral stance on risk allocation within our alternatives portfolio amidst elevated downside growth risks and high equity valuations. While private debt and hedged strategies are preferred over private equity due to muted deal flow and valuation gaps, alternative lenders are set for a promising year thanks to abundant real estate debt dry powder. We see direct lending as favorable given its macroeconomic tailwinds, while real estate credit is our choice for accessing real estate markets amidst anticipated valuation bottoms. Despite challenges in private equity from high interest rates and tariffs, there remains potential in domestically oriented sectors that might benefit from regulatory support.

Real estate valuations appear attractive compared to equities following volatility in policy and sentiment; expected Federal Reserve cuts could bolster lending costs favorably. Meanwhile, hedge funds with low market risk betas present viable alternatives post-stock market corrections, with event-driven strategies benefiting from limited M&A activity as private equity deals pause. This landscape offers varied opportunities across asset classes while demanding careful navigation of ongoing uncertainties to optimize investment decisions effectively.