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fa-mag. com / ce _ center. php vate equity. In private credit, he’ s underweight cyclical sectors such as energy that are dependent on the economy, since he thinks the inflationary effects of tariffs could slow GDP growth.

On the other hand, he favors those sectors throwing off strong recurring revenues such as healthcare and technology services. He’ s also overweight in several sectors of real estate— such as select student housing, select industrial, and multifamily housing.

“ For us to be comfortable with the illiquidity factor and risk, we need net midteens internal rate of return for real estate equity,” he says, adding that he’ s looking for a net high-teens gain for private credit because of its longer investment lockup period. Williams expects more liquid versions of private credit to have targeted higher single-digit returns.

Bulls generally like the fast-growing $ 1.5 trillion private debt market because, for one thing, traditional lenders are pulling out, which means there are attractive opportunities for smart managers, and the returns in the space have been relatively robust and stable.

In the coming years, industry observers see investors’ and advisors’ allocation to alternatives only increasing, as new products and strategies hit the market.

Catterick of Manulife John Hancock Investments finds asset-based lending( loans secured by physical assets)“ interesting,” since these investments could generate low double-digit returns. He also likes infrastructure, the building of traditional structures such as roads and ports and, increasingly, data centers. That sector has $ 1.2 trillion in assets according to the Chartered Alternative Investment Analyst Association, and these investments historically have generated low double-digit returns, as well, Catterick says.

Increasingly, investors seeking income and a hedge against inflation are finding a home in the $ 20 trillion private real estate sector. Kate Hall, vice president of internal due diligence at Carson Group, an Omaha, Neb.-based RIA with $ 50 billion in assets, says she continues to favor industrial and multi-family sectors because high rates are crimping supply.

“ As we move through 2025 and 2026, the ability of these types of properties to increase rents and thus net operating income should be fruitful for investors,” she says.

Hall says her firm’ s allocation to private markets stands at its maximum 20 %. The allocations are fairly balanced across private equity, credit and real estate with overweights to private equity for riskier portfolios and overweight positions to private credit and real estate for less aggressive allocations.

For private equity, she expects a lowto mid-teens return and high single digits to low double digits for private real estate and private credit.

In the coming years, industry observers see investors’ and advisors’ allocation to alternatives only increasing, as new products and strategies hit the market and as model portfolios for alternative investments grow in popularity. A recent survey by Fuse Research Network of Needham, Mass., reports that advisors aim to sharply increase their use of cryptocurrency and digital assets over the next two years, which will spur adoption of alternatives. But observers urge investors to be wary of the trade-offs for alternatives in general, notably the long lockup periods.

“ Over the next several years the goal for the industry is to get allocation for wealth clients to 10 % from its current 3 % to 4 %,” says Diorio.“ Eventually it could look like institutional’ s 20 %, but it won’ t happen overnight, and a lot of education needs to be done.”

Indeed, alternative investments are ideal for these turbulent times. But it’ s an investment strategy for all seasons, maintain strategists.“ Alts is strategic and a place you always want to be,” says Farr, adding Homrich“ has always been heavy users of alts and will continue to be.”

50 | FINANCIAL ADVISOR MAGAZINE | APRIL 2025 WWW. FA-MAG. COM