Six macroeconomic forces influencing alternative investments in 2026

Executive Summary

• Alternative investment performance in 2026 reflects a structural reset shaped by higher rates, persistent inflation uncertainty, uneven growth, and constrained liquidity
• Capital deployment is increasingly driven by AI investment cycles, geopolitical fragmentation, and growing investor preferences for private markets
• Return drivers now rely on execution discipline rather than market tailwinds
• Capital is concentrating in fewer, higher-conviction opportunities
• Some investors are evaluating whether private markets may play a larger role in diversified portfolios

A Structural Reset, Not a Cyclical Rebound

Private markets are no longer benefiting from the same conditions that defined the 2010s. Declining rates, abundant leverage, and multiple expansion have faded, forcing a reset in how value has historically been created. At the same time, the asset class continues to grow, approaching $20 trillion in global assets under management, driven by technology spending, broader investor participation, and companies choosing to stay private longer.

Against this backdrop, alternative investment performance in 2026 is shaped by six interrelated forces: high interest rates, persistent inflation risk, uneven growth, constrained liquidity, AI-driven capital investment, and geopolitical fragmentation.

1. Interest Rates: Easing but Structurally Higher

The 2026 rate environment is defined by:

• Central banks cutting rates, but financing costs remain elevated relative to the past decade
•  Improved borrowing conditions are reviving deal activity and exits
• Multiple expansion no longer the primary return engine

Implications for Alternatives

• Private Equity: Value creation shifts toward operational improvement and margin expansion
• Private Credit: Elevated base rates sustain attractive income yields
• Real Estate: Recovery is uneven and tied to asset quality and capital structure discipline

Capital structures are becoming a primary source of differentiation, with sponsors using hybrid debt, preferred equity, and structured solutions to bridge valuation gaps.

2. Inflation: Moderating but with Embedded Risk

Inflation has eased from peak levels but remains a persistent source of volatility, particularly due to:

• Ongoing supply chain disruptions driving unpredictable material costs
• Changing tariffs and trade policy creating challenges for importers
• Geopolitical tensions disrupting energy, trade flows, and production stability

Implications for Alternatives

• Real Assets: Infrastructure, energy, and real estate benefit from inflation-linked cash revenues, including CPI-based contracts, regulatory resets, and rent escalation
• Hedge Funds: Macro and relative value strategies gain from rate, currency, and cross-asset volatility
• Portfolio Construction: Allocations are moving away from single-hedge strategies toward a “basket of diversifiers”

Investors appear to be prioritizing inflation adaptability over static hedges, favoring assets that can reprice through contractual, regulatory, or market-driven mechanisms.

3. Economic Growth: Resilient but Uneven

Global growth in 2026 is moderate, supported by AI investment and fiscal policy, but uneven across sectors and regions.

• AI-related spending is driving productivity and capital formation
• Emerging markets are benefiting from manufacturing realignment and supply chain shifts
• Dispersion between winners and losers is widening

Implications for Alternatives

• Hedge Funds: Greater dispersion creates more alpha opportunities
•  Private Equity: Sector selection becomes more critical than timing
• Venture Capital: Capital concentrates in fewer, higher-conviction companies

The market is shifting from a beta-driven environment to a dispersion-driven one, increasing the value of manager skill and sector specialization.

4. Liquidity Conditions: Constraint on Returns

Liquidity remains one of the defining forces in private markets.

• Exit activity is recovering but still constrained relative to prior cycles
• Distributions remain limited due to longer holding periods and valuation resets
• Secondaries, continuation vehicles, and structured liquidity solutions are gaining prominence

Implications for Alternatives

• Secondary Markets: Increased reliance on recapitalizations to generate liquidity
• Capital Flows: Concentrate among established managers with proven exit execution track records
• Portfolio Construction: Must account for timing risks and extended duration assumptions

To manage liquidity risk, investors are allocating across primary funds for long-term value creation, secondaries for liquidity and discounted entry, and structured capital for income and downside protection.

5. Technology: AI Investment as a Capital Cycle

AI is driving one of the largest infrastructure buildouts in modern history.

• Global data center investment could reach $7 trillion by 2030
• Hyperscalers alone plan $660–$690 billion in infrastructure spending in 2026
•  AI workloads are increasing demand for power, cooling, and network infrastructure

Implications for Alternatives

• Infrastructure: Data centers, power grids, and connectivity assets become core allocations
• Private Equity: Opportunities expand across the AI value chain (hardware, software, services)
•  Real Assets: Energy and utilities become key beneficiaries as demand increases

AI investment is spilling over to increase demand for energy, industrial manufacturing, real estate, and private credit.

6. Geopolitical Fragmentation: Redefining Capital Flows

Globalization is being replaced by a divided system.

• Supply chains are being rewired toward resilience and national security priorities
• Trade tensions and tariffs are accelerating reshoring and regionalization
•  Investment is flowing into domestic infrastructure and strategic industries

Implications for Alternatives

• Infrastructure: Increased investment in energy, logistics, and supply chains
• Real Assets: Industrial and manufacturing assets benefit from reshoring
• Hedge Funds: Macro strategies gain from currency, rate, and commodity volatility

Geopolitics is now a driving market force influencing sector selection and capital allocation.

Investor Preferences: The Convergence of Public and Private Markets

Investors are treating private investments as a fundamental part of portfolios as companies stay private longer and investor participation expands into wealth and retirement channels.

Demand is strongest in:

• Private credit for income and flexibility
•  Infrastructure for inflation and growth
• Select private equity opportunities for operational value creation
• Hedge funds positioned for alpha generation

As capital flows across these strategies, the traditional distinction between public and private markets continues to blur. Investor allocation decisions increasingly reflect liquidity profiles and return characteristics rather than asset class labels.

We Can Help

The macro environment is redefining how investors approach alternatives, aligning capital with long-term themes such as AI infrastructure, reshoring, and supply chain realignment. Addressing tax, regulatory, and structural considerations upfront can enhance investment flexibility, reduce execution risk, and meet investor expectations more effectively.

Elliott Davis provides services across:

• Financial statement audits
• SEC Custody Rule examinations
• Tax planning and compliance
• UBTI analysis
• Tax, accounting, reporting, and governance considerations for fund structures

Contact our team to discuss the tax, accounting, reporting, and compliance implications of alternative investment structures. We do not make investment decisions for customers or implement transactions on a discretionary basis. Services to attest customers are subject to applicable independence requirements, and customer management remains responsible for all decisions and implementation.

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.