find your solution.
search for solutions by category, industries, insights, and people.
search for solutions by category, industries, insights, and people.
search for solutions by category, industries, insights, and people.
Alternative investments are experiencing unprecedented momentum as investors seek higher returns, portfolio diversification, and protection against market volatility. Once the domain of institutional investors, endowments, and high-net-worth individuals, these assets are now more accessible due to evolving financial markets, regulatory shifts, and technology-driven investment platforms.
Alternative investments refer to non-traditional assets. These investments involve classes other than publicly traded stocks and bonds. These assets offer diverse risk exposure, lower correlation to public markets, and potential for higher returns. Key categories include:
Private credit (non-bank lending by private equity firms, hedge funds, and institutional investors) has become one of the fastest-growing alternative asset classes. As traditional banks pull back from riskier lending, private credit funds are filling the gap, creating a secondary market for capital. The global private credit market surpassed $1.5 trillion at the start of 2024 and is projected to reach $2.6 trillion by 2029.
Institutional investors may find private credit attractive for its potentially higher yields and flexible lending terms. These funds provide essential financing for middle-market companies, real estate projects, and distressed businesses, offering solutions that traditional lenders often avoid. With bank lending restrictions tightening, private equity firms and hedge funds are increasing their exposure to private credit, viewing it as a highly dynamic and profitable way to deploy capital.
Alternative investments continue to adapt to economic conditions, investor preferences, and global trends. Among the most notable developments:
Alternative investments in 2025 are being driven by political transitions, economic shifts, and new market dynamics. As investors grapple with uncertainty and volatility, understanding where to invest and how to invest wisely will become a priority.
Several macroeconomic trends are driving the demand for alternative assets, altering risk and return dynamics while creating new opportunities and challenges for investors. To stay competitive, asset managers, hedge funds, and private equity firms are adjusting their strategies in response to these market forces.
Many economists expect the Federal Reserve's monetary policy to continue to focus on balancing inflation control with economic growth, increasing borrowing costs for leveraged investment strategies, such as private equity, real estate, and venture capital.
In recent years, the Federal Reserve implemented a series of interest rate hikes to combat inflation. However, in 2024, it shifted course, cutting rates by 50 basis points in September and another 25 basis points in December. While further cuts were initially expected in 2025, the Fed opted to hold rates steady in January. Given this decision and recent inflation data, many economists now anticipate rates will remain unchanged for the rest of the year.
Meanwhile, debt-driven investment strategies face margin compression, while cash-flowing assets like infrastructure and private credit become more attractive.
Inflation remains a significant concern as supply chain disruptions and geopolitical tensions continue to drive up prices. Rising costs can squeeze profit margins across industries, affecting overall investment performance. To counter these challenges, investors are increasingly turning toward real assets like real estate, commodities, and infrastructure, along with private market investments, to hedge against inflation and stock market volatility.
Strategies that focus on value creation through operational efficiencies may increase in popularity, as firms look to maintain returns despite rising costs. Alternative investments that hedge against inflation include commodities, real assets, and private equity.
Regulatory frameworks worldwide are tightening, with new reporting requirements, enforcement priorities, and compliance risks directing operations. The implementation of the Corporate Transparency Act (CTA) in the U.S. is a direct example, requiring enhanced reporting of significant ownership for corporations in an effort to combat terrorist financing, seize proceeds of drug trafficking, and root out illicit assets of sanctioned parties and foreign criminals in the country.
Alternative investment firms will need to comply with these regulatory changes effectively while maintaining operational efficiency. Keeping up with regulatory trends and implementing strong compliance frameworks can offer a strategic edge in risk mitigation and building credibility with investors.
Fintech is a primary example of innovations reshaping traditional investment practices, enabling firms to enhance due diligence processes, optimize asset management, and improve investor relations. Alternative investment management teams should understand and assess how their practice may benefit from technological advancements such as artificial intelligence and machine learning for better decision-making and risk assessment.
Additionally, blockchain technology may play a role in improving transparency and efficiency in transactions, presenting opportunities for firms willing to adapt.
Geopolitical tensions, including trade disputes and conflicts, will continue to increase economic uncertainty and the risk premium for emerging markets, affecting investor sentiment. At the same time, de-globalization and reshoring efforts attempt to redirect capital toward domestic infrastructure, manufacturing, and supply chain resilience, creating new investment opportunities.
Alternative investment firms should be prepared for the impact of these geopolitical factors on their portfolios, particularly those with international exposure. A diversified investment strategy incorporating geographic risk and sector-specific vulnerabilities is important in managing uncertainty in global markets.
Investors are becoming increasingly sophisticated and selective, with a growing emphasis on ESG factors. Global ESG-focused assets are expected to exceed $40 trillion by 2030, reflecting a massive shift in capital toward sustainable investments. To attract capital from environmentally conscious investors, alternative investment firms are integrating ESG considerations into their strategies and evaluating opportunities that align with sustainability goals.
This shift may require a reevaluation of portfolio construction and a focus on sustainable investments, particularly in real estate and infrastructure. Management teams that embrace ESG principles have an opportunity to enhance their appeal to a wider target audience of investors.
For more information on ESG strategies, see our article, Top ESG Priorities for 2025.
The alternative investment sector is becoming increasingly competitive as traditional asset managers expand into alternatives. With more players in the market, investors are prioritizing strong risk-adjusted returns, enhanced transparency, and sophisticated risk management strategies.
To stand out, firms differentiate through unique value propositions, innovative investment strategies, and superior performance metrics. Building long-term investor relationships, maintaining trust through clear communication, and establishing a strong, recognizable brand presence help firms sustain growth and attract capital in a changing market.
In 2025, the alternative investment industry will face a variety of macroeconomic factors that present challenges as well as opportunities. Firms that take a proactive approach can strengthen their position, mitigate risks, and capitalize on emerging trends. Success will depend on adaptability, strategic foresight, and a well-informed investment strategy.
At Elliott Davis, our Alternative Investments team delivers tailored guidance to help firms refine their go-to-market strategy, build resilience in uncertain conditions, and navigate market complexities.
We offer:
Contact us today, and a team member will reach out to discuss your needs and opportunities.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
