The Certuity 2026 Alternative & Private Investment Outlook

“You know, I’m still standing better than I ever did
Looking like a true survivor, feeling like a little kid
I’m still standing after all this time
Picking up the pieces of my life without you on my mind”

By Scott Welch, CIMA®, CEPA®, Chief Investment Officer & Partner

Reviewed by Carter Mecham, CMA®, IACCP®

We seem to have reached a new stage of evolution with respect to alternative and private market investments as they pertain to the RIA/Wealth industry.

For years we heard and read about the “democratization” of alternative and private investments – that is, making these types of investment strategies more accessible to non-sovereign or institutional investors.

That expression now seems almost quaint. Democratization is no longer coming – it is here.

The growth and evolution of semi-liquid “evergreen” solutions has opened up the possibility of private markets investing to a much wider audience of potential investors. Previously, these types of strategies were available only to “Qualified Purchasers” (QPs), which were limited to institutional investors, sovereign wealth funds, pensions, endowments, and ultra-high net worth families.

So, as we start 2026, it is worth checking in on the current and potential future state of alternative and private market investments.

The Potential Value of Alts & Privates in Diversified Portfolios

We think the first place to start is to examine what the future potential return of the public equity market might be. In several previous blogs, we reviewed the current state of the economy, the Fed, interest rates, inflation, and earnings – what we believe are the five primary “signals” as to the current state of the markets.

But let’s remind ourselves that the future potential upside of any investment depends on the price you pay for it today and, at least in the public equity markets, valuations remain high across the global spectrum, with perhaps some relative value in small caps, both US and non-US.

Source: Morgan Stanley Eaton Vance “The Beat,” as of Q1 2026. You cannot invest in an index and past performance is no guarantee of future results.

What this translates into is that current valuations correspond to muted expected equity market returns over the next ten years.

Source: Capital Spectator, 10-year annualized forecasts as of February 3, 2026. These are estimates and subject to change. You cannot invest in an index and past performance is no guarantee of future results. “BB” =The Building Block method, which uses historical returns as a proxy for estimating the future. “EQ” = The Equilibrium method, which reverse engineers expected return by way of risk. Rather than trying to predict return directly, this model relies on a framework of using risk metrics to estimate future performance. “ADJ” = The Adjusted Equilibrium method, which is identical to the EQ method with one exception: the forecasts are adjusted based on short-term momentum and longer-term mean reversion factors. “AVG” is the average of the three methodologies.

Now let’s remind ourselves of the concept of “economic regime” investing. The idea is that, at any given time, the economy is either expanding or contracting, and inflation is either rising or falling. We note that this is not a static framework – the economy and markets are constantly “flowing” from one quadrant to another.

Source: Certuity. For illustration purposes only.

We can then overlay this schematic with which types of investment strategies have the potential to perform best during each phase of the economic cycle.

Source: Certuity. Definitions: “Capital Growth” = Equity strategies, “Income” = Rate and Credit strategies, “Real Assets” = commodities, precious metals, real estate, MLPs, etc., “Volatility Management” = alternative and private investment strategies. For illustration purposes only – does not represent investment advice.

The overall strategic objective is to build “all-weather” portfolios that aim to perform consistently regardless of where we are in the economic cycle.

Remember the power of compounding – if you don’t lose as much in a down market, you don’t have to make as much in an up market to still come out ahead over time.

Source: Nationwide IMG Competitive Intelligence Team.

The potential benefits of incorporating alts and privates into diversified portfolios vary depending on the strategy. In the case of so-called “alternative investments” (long/short equity, global macro, managed futures, event-driven, option-based, etc.), the primary value proposition is lower correlation to traditional stocks and bonds, thereby potentially increasing the diversification of the overall portfolio.

But what do we really mean by “alternatives”? In our opinion, alternative investments are simply less constrained active management strategies.

In other words, there is nothing particularly “alternative” about them. They just have greater flexibility to deploy a variety of investment approaches.

Source: Fortigent and Certuity. For illustration purposes only.

In the case of private investments, the potential benefits are the ability to take advantage of illiquidity and leverage, which historically have provided excess performance and/or yield versus more traditional investments. While these return premiums will fluctuate based on market conditions, we believe they will continue going forward.

We see this illustrated in historical performances:

Sources: MSCI Indexes, MSCI Private Capital Solutions, Cliffwater, NCREIF, Bloomberg, Macrobond, PitchBook. Analysis by Franklin Templeton Institute. These are historical performances as of June 30, 2025. Notes: Returns exceeding a year are annualized. The indexes are total returns in US dollar terms. All returns are net of fee assumptions as gathered by Franklin Templeton, valued on a quarterly basis. Indexes are unmanaged and one cannot directly invest in them. Past performance is not an indicator or a guarantee of future results.

And also in projected future performances:

Source: iCapital, data as of November 30, 2025. You cannot invest in an index and past performance is no guarantee of future results. These figures represent estimated projections of future performance.

The potential diversification benefit of including alternatives and privates into a portfolio can be illustrated by showing the historical correlations between these markets and the public markets.

Source: Bloomberg, Burgiss, Cliffwater, MSCI, NCREIF, PivotalPath, J.P. Morgan Asset Management. Europe Core RE includes continental Europe. Private Equity and Venture Capital are time-weighted returns from Burgiss. RE: real estate. Global equities: MSCI AC World Index. Global Bonds: Bloomberg Global Aggregate Index. U.S. Core Real Estate: NCREIF Property Index – Open End Diversified Core Equity component. Europe Core Real Estate: MSCI Global Property Fund Index – Continental Europe. Asia Pacific (APAC) Core Real Estate: MSCI Global Property Fund Index – Asia-Pacific. Global infrastructure (Infra.): MSCI Global Private Infrastructure Asset Index. U.S. Direct Lending: Cliffwater Direct Lending Index. Timber: NCREIF Timberland Property Index (U.S.). Hedge fund indices are from PivotalPath. Transport returns are derived from a J.P. Morgan Asset Management index. All correlation coefficients are calculated based on quarterly total return data for the period indicated. Returns are denominated in USD. Past performance is not a reliable indicator of current and future results. Diversification and asset allocation do not ensure a profit or guarantee against loss. Data are based on availability as of January 31, 2026.

The net result of including alts and privates is a potential improvement in the overall risk/return profile of a diversified portfolio.

Source: Bloomberg, Burgiss, FactSet, NCREIF, PivotalPath, Standard & Poor’s, J.P. Morgan Asset Management. The alternatives allocation includes hedge funds, real estate, and private equity, with each receiving an equal weight. Portfolios are rebalanced at the start of the year. Equities are represented by the S&P 500 Total Return Index. Bonds are represented by the Bloomberg U.S. Aggregate Total Return Index. Volatility is calculated as the annualized standard deviation of quarterly returns. Past performance is not a reliable indicator of current and future results. Diversification and asset allocation do not ensure a profit or guarantee against loss. Data are based on availability as of January 31, 2026.

Source: Burgiss, Clarkson, Cliffwater, Drewry Maritime Consultants, FactSet, Gilberto-Levy, MSCI, NCREIF, PivotalPath, J.P. Morgan Asset Management. Correlations are based on quarterly returns over the time period indicated. A 60/40 portfolio is comprised of 60% stocks and 40% bonds. Stocks are represented by the S&P 500 Total Return Index. Bonds are represented by the Bloomberg U.S. Aggregate Total Return Index. 10-year annualized returns are calculated based on the time period indicated. “Absolute Return Hedge Funds” represent asset-weighted returns from the PivotalPath Global Macro and Relative Value indices. “Directional Hedge Funds” represent asset-weighted returns from the PivotalPath Credit, Equity Diversified and Event Driven indices. Direct Lending uses yields from the Cliffwater Direct Lending Index. All other indices and data used for alternative asset class returns and yields are as described on pages 12 and 16 of the Guide to Alternatives. Yields are based on latest available data as described on page 12 of the Guide to Alternatives. Transportation returns are shown on an unlevered basis, and returns can be enhanced by adding leverage. *CML is commercial mortgage loans tracked by the Gilberto-Levy Commercial Mortgage Index. Past performance is not a reliable indicator of current and future results. Diversification and asset allocation do not ensure a profit or guarantee against loss. Data are based on availability as of January 31, 2026.

Source: Bloomberg Index Services Limited, Cliffwater Direct Lending Index, FTSE Russell, Hedge Fund Research (HFR), MSCI, NCREIF, Preqin, iCapital Alternatives Decoded, with data based on availability as of November 30, 2025. Note: Data as of June 2025 and is subject to change based on potential updates to source(s) database. Return and volatility is annualized and is based on quarterly data. Buyout is proxied by Preqin Private Equity Buyout Index. Growth is proxied by Preqin Growth Equity Index. Venture proxied by Preqin Venture Capital Index. Secondaries proxied by Preqin Secondaries Index. Direct Lending is proxied by Cliffwater Direct Lending Index. Distressed proxied by Preqin Distressed Private Debt Index. Real Estate proxied by NCREIF NFI-ODCE Index. Infrastructure proxied by Preqin Infrastructure Index. Private Timber proxied by NCREIF Timberland Property Index. Private Farmland proxied by NCREIF Farmland Property Index. Macro HFs is proxied by HFRI Macro Total Index. Multi Strat HFs proxied by HFRI RV: Multi-Strategy Index. Event Driven HFs proxied by HFRI Event-Driven Total Index. Equity Hedge HFs proxied by HFRI Equity Hedge Total Index. Credit HFs proxied by HFRI Credit Index. Global 60/40 proxied by 60% MSCI ACWI Net Total Return USD Index and 40% Bloomberg Global Aggregate Index. Cash proxied by the FTSE 3 Month US T Bill Index. Annualized risk and returns above are based on indices that are meant to estimate the asset class performance, hypothetically creating a return if one had access to all funds. Not all the above are practically investable. For more information, please refer to the Index Definitions, Attributions, and Important Information sections at the end of this deck. For illustrative purposes only. Past performance is not indicative of future results. Future results are not guaranteed. Diversification and asset allocation do not ensure a profit or guarantee against loss.

Where We See Current Opportunities

Alternative Investments

Historically, alternative investments have performed best, especially in terms of diversification benefits, in market regimes characterized by rising interest rates and rising volatility.

The period from 2009 – 2022 was characterized by almost zero interest rates and very low volatility. As a result, many alternative investments did not deliver performances commensurate with their fee structures and so fell out of favor with many investors.

Rates have risen but still remain relatively low, and volatility has also remained quiescent. Despite this, we are seeing market rotation away from one dominated by large cap mega-cap tech stocks toward much broader market participation (we’ve seen several months’ rally in value, small cap, dividend paying, and non-US stocks).

Put differently, we think this is a market regime that has the potential to reward active management, and we further believe that investors will benefit from additional diversification within their portfolios.

Source: Bloomberg, CBOE, FactSet, MSCI, PivotalPath, Standard & Poor’s, J.P. Morgan Asset Management. Monthly VIX reading is an average. (Top Chart) Macro hedge fund relative performance volatility is since June 30, 1998. Numbers may not sum to aggregate total return due to rounding. Global equity index = MSCI All Country World Index. 60/40 portfolio = 60% S&P 500 Total Return Index and 40% Bloomberg U.S. Aggregate Total Return Index. Past performance is not a reliable indicator of current and future results. Data are based on availability as of January 31, 2026.

Source: JP Morgan “Guide to Alternatives,” as of January 31, 2026. You cannot invest in an index and past performance is no guarantee of future results.

So, we are bullish on diversifying strategies and believe that quality multi-strategy funds are a good solution for investors not large enough to build customized portfolios fund by fund.

Over the course of 2025, alternatives (i.e., hedge funds) performed as expected, generating consistent returns with lower-than-equity volatility and providing the diversification benefits we expect from these strategies.

Source: FEG, “Fourth Quarter 2025 Market Summary”. You cannot invest in an index and past performance is no guarantee of future results.

Private Credit

We have been advocates of private credit versus the public market for quite some time, and we maintain that conviction. However, it may be true that the dominant “space” within private credit – the PE-sponsored direct middle/upper market lending space – is getting “crowded” due to massive inflows over the past 4-5 years. This growth is expected to continue.

Source: The Goldman Sachs 2026 Outlook, January 2026. You cannot invest in an index and past performance is no guarantee of future results.

Source: Franklin Templeton “Private Market Outlook 2026”, January 2026. Forward projections are estimates and subject to change.

There are arguments in favor of private credit for investors seeking enhanced yield within their portfolios.

The first is simply the enhanced return private credit has delivered over the past ten years. This outperformance is expected to continue, despite significant inflows and increased competition.

Sources: Wilshire, Preqin, Bloomberg, Compass. Returns re-based to 100 as of December 31, 2007. Past performance does not guarantee future results. Private market indices are based on self-reported, unaudited fund data and are subject to bias and estimation. Public indexes reflect liquid, market-traded securities and differ materially in structure, valuation, and risk. Indexes are for illustrative purposes only and not directly investable. For illustrative and discussion purposes only.

Source: iCapital, data as of June 30, 2025. You cannot invest in an index and past performance is no guarantee of future results. Forecasts are estimates and subject to change.

The primary competitor to private credit in the direct large and middle market lending space is the bank syndicated loan (BSL) space which, after laying fairly dormant for several years following the regional banking crisis of 2023, has revitalized and is expected to grow substantially over the next several years (first chart).

This presents increased competition to direct middle market lending, especially in the larger company market space (second chart).

Source: Market Research Future, “Syndicated Loan Market,” October 2025. Future growth rates are estimates and subject to change as market conditions change.

Sources: Golub Capital, “Crowded Market in Private Credit? Enter The Large, Public Alternative Managers,” February 2026. For illustration purposes only – does not represent investment advice. 1. Source: Private middle market direct lending represents total direct lending assets under management of $594 billion from Preqin’s database plus $325 billion of public BDCs and perpetually private BDCs from Cliffwater’s Direct Lending Index. The data is as of September 30, 2024. 2. Source: Syndicated loan market of $1.4 trillion represents par amount of total U.S. loans in Morningstar’s LSTA U.S. Leveraged Loan Index. Sourced from Pitchbook LCD’s “U.S. Loan Stats Weekly Trend” report as of November 15, 2024. High yield market $1.7 trillion represents total outstanding from S&P U.S. High Yield Corporate Bond Index. Sourced from Pitchbook LCD’s “Interactive High-Yield” Report as of October 31, 2024.

*Note: This presentation defines the core middle market generally as borrowers with $20-100 million of EBITDA and the large market segment generally as borrowers with over $100 million of EBITDA.

The difference is the ultimate holder of the loan. In the BSL market, the majority of loans are bundled into Collateralized Loan Obligations (CLOs) and sold off to institutional and individual investors. We can see this illustrated in the current and expected growth of the CLO market.

Source: The Business Research Company, “Collateralized Loan Obligation Market Report 2026, January 2026. Future growth rates are estimates and subject to change as market conditions change.

The result is that there is the potential that due diligence is not as robust in the BSL market since, for the most part, the underwriting banks will not be holding the loans to maturity.

We don’t want to overstate this, but a primary difference in the private credit space, other than a small subset of secondary market transactions, is that the underwriters of a given loan tend to hold that loan until maturity or refinancing, and so an argument can be made that the underwriting standards are more stringent.

With respect to current market opportunities, it may be true that the traditional and dominant direct middle and upper market lending is getting “crowded,” but private credit is much more than just this segment.

While we are still active in direct middle/upper market lending, we are also focusing on less “crowded” segments such as asset-based lending, securitized lending, triple net leases, and other specialty credit spaces.

Source: Franklin Templeton “Private Market Outlook 2026”, January 2026.

Source: Apollo and Preqin Private Debt AUM as of June 2023.

We must add that in recent days and weeks, private credit has come under intense scrutiny, and many of the publicly traded Business Development Corporations (BDCs) have seen their stock prices fall dramatically.

Part of the anxiety regarding private credit is that a significant percentage of the loans are to “Software as a Service” (SaaS) companies, and recently announced advancements in Artificial Intelligence (AI) has investors concerned about major disruptions in the SaaS and other industries.

The irony is that, at least with the higher quality lenders, the quality of the underlying loan books remain solid, with low delinquency and default rates.

It is too early to tell if this is a market panic or the beginning of a new credit cycle, but we still view private credit – working with quality managers and sponsors – as viable for the appropriate investors seeking enhanced risk-adjusted yield versus what is available in the public markets.

Private Equity

While we remain active in the traditional Growth Equity and M&A/Buyout spaces, we continue to be active in searches for quality private equity solutions across a variety of sub-sectors, including sports investing, infrastructure, real estate, secondaries, and GP stakes. We have also increased our searches into venture capital.

• Sports Investing: This entails lower correlated strategies, a growing opportunity set, and a differentiated solution. Team valuations, fan viewership, sponsorship opportunities, and media rights are driving explosive growth in this space. We have been active in this space and continue to seek additional opportunities.

Source: iCapital Market Pulse: Private Equity’s Next Foray – Sports Investing, February 2025.

Source: iCapital Market Pulse: Private Equity’s Next Foray – Sports Investing, February 2025.

The term “sports investing” means far more than simply taking an equity interest in a particular team. There are myriad other revenue sources besides just ticket sales and media rights (though those dominate the revenue stream, first chart).

To date, we’ve chosen to take more of a “pure play” approach and have not entered into adjacent “sports” segments such as gambling and e-sports. But we remain optimistic about the growth potential of the overall space (second chart).

Source: JP Morgan, “Eye on the Market: A Piece of the Action,” June 2024.

Source: iCapital Market Pulse: Private Equity’s Next Foray – Sports Investing, February 2025.

• Infrastructure: Infrastructure spending is expected to increase dramatically over the next 10-15 years. We are specifically interested in energy infrastructure, due to the exploding demand for energy, transmission, and AI data centers.

Source for both of the previous two charts: McKinsey & Company, “The cost of compute: A $7 trillion race to scale data centers”, April 2025.

• Real Estate: We believe this sector is poised for a comeback following its “beat down” during COVID. We are currently researching growth/value-added equity solutions.

Source: Franklin Templeton “Private Market Outlook 2026”, January 2026.

• Secondaries: The traditional “exit ramps” for many private equity strategies – the IPO and M&A markets – have been less active for the past few years though the IPO market appears to be picking up – at least for larger companies (first chart). Thus, as sponsors seek to generate liquidity for distributions and/or to launch new funds, we continue to believe there are attractive opportunities available in the secondaries space, and many strategies are available at interesting discounts (second chart).

Source for both charts: Franklin Templeton and Mizuho Greenhill, as of June 30, 2025. You cannot invest in an index, and private investments may carry additional liquidity and leverage risks and are often limited to more sophisticated investors accordingly. Past performance is no guarantee of future results.

• GP Stakes: These funds acquire minority ownership interests in asset managers operating across the private markets landscape, including private equity, private credit, real estate, and infrastructure. It’s a rapidly growing space as the selling funds seek permanent expansion capital. Investors receive a pro rata share in management fees, upside in the underlying investments, and in the growth of the sponsor fund itself.

Source: Blue Owl, July-August 2024.

The Importance of Diversification and Manager Selection

As a quick reminder, manager selection within the alternative and private market investment spaces is of critical importance. Unlike the public markets, (a) the performance dispersion between the top quartile and bottom quartile managers can be dramatic, and (b) historically, within the private market space, top quartile managers have shown a consistency of top performance.

Source: Burgiss, Morningstar, NCREIF, Pitchbook | LCD, PivotalPath, J.P. Morgan Asset Management. Global Large Cap Equities and Global Bond are based on the Morningstar Global Large Stock Blend and Global Bond (not hedged) categories, respectively. U.S. Core Real Estate is based on the NCREIF Fund Index – ODCE. Global Private Credit is represented by Pitchbook | LCD fund data. U.S. Non-core Real Estate, Global Private Equity and Global Venture Capital are based on indices from the MSCI Private Capital Universe. Hedge Funds are based on the PivotalPath index. *Manager dispersion is based on annual returns over the 10-year period indicated for: Global Large Cap Equities, Global Bond, U.S. Core Real Estate and Hedge Funds. Manager dispersion is based on the 10-year internal rate of return (IRR) ending 4Q24 for: Global Private Credit, U.S. Non-core Real Estate, Global Private Equity and Global Venture Capital. Past performance is not a reliable indicator of current and future results. Data are based on availability as of January 31, 2026.

We also emphasize the importance of diversification when investing in private equity, across three dimensions. Private equity is not a “one and done” strategy – the risk is too high. To appropriately invest in private equity, investors need to diversify across managers, strategies, and – perhaps most importantly – across vintage years.

The appropriate portfolio construction approach is to build a diversified mix of allocations and then, as the initial investments reach their distribution phases, to use those distributions to “self-fund” future vintage year investments.

Summary and Interpretation

We are long-time advocates of the strategic inclusion of both alternative and private market investments into the construction of diversified portfolios, and we hope this blog successfully summarizes why we feel that way.

From a portfolio construction perspective, the allocation amounts of these strategies are dependent on client objectives, risk/return objectives, and liquidity constraints.

But, as a starting point and given a “blank sheet of paper”, we generally recommend a 15-25% allocation to these types of strategies – large enough to “move the needle” with respect to the risk/return profile of the overall portfolio, but not so large as to create “illiquidity anxiety” for most investors of appropriate net worth and investable capital.

We’ve also tried to summarize and support where we believe the best current opportunities are in these ever-evolving markets.

As always, we welcome your questions and feedback.