Introduction

Introduction

iCapital Flow-of-Funds

Private wealth clients shifted away from private credit in late 2025 and into 2026

Growth & venture and infrastructure have been the clear share gainers

Open-end funds continue a steady increase

Overview

Alternative managers hold $21.5 trillion in global assets under management

Alternatives have grown significantly and are projected to increase in years ahead

Alternatives are expected to have the highest growth compared to traditional assets

Fundraising levels likely bottomed in 2024 with positive momentum seen in 2025

Dry powder has declined to $4.0 trillion as capital deployment is starting to recover

Alternatives have offered strong, long-term outperformance vs. a traditional 60/40 portfolio

Several private market strategies offer higher yields than public markets

Alternatives can be a powerful diversifier due to their low correlation

Alternatives offer higher returns and lower volatility vs. a traditional 60/40 portfolio

Select private market strategies are trading at valuations below historical levels

Private clients to increase alternatives allocation from $4T to $13T by 2032

The opportunity to increase allocations is sizable given low portfolio allocation

Private Equity

Private equity is the largest alternatives asset class and is expected to double by 2030

IPO activity is not what it used to be as companies are staying private for longer

Private companies outnumber publicly traded ones, across most revenue segments

Private markets offer investors an opportunity to tap into a larger pool of innovation

Private equity has outperformed public equities; five-year returns have leveled off

Private equity has delivered more consistent positive returns but lower recent returns

Private equity performance generally improves following downturn year vintages

U.S. PE is at a discount to public markets comps while Europe PE has been a premium

Lower rates may favor large buyouts, however middle market also offers opportunities

Managers adjusted to higher cost of capital by reducing leverage, but this is changing

Exit values recovered in 2025 on larger realizations; total deal count has been stable

M&A uptick remains; geopolitical issues are a risk to deal timing

The overall PE backlog is significant due to the accumulation of slow realizations

This is not just an exit problem as heightened deal entries are also involved

Focusing on the exit side, valuation remains a challenge

Limited partners are just starting to see more distributions than capital called

Venture Capital

Venture capital assets are expected to grow at a 10% CAGR through 2030

Venture capital offers access to vast opportunities and high-growth sectors

Venture capital is a dominant force in the financing of innovation and growth

Today’s venture landscape: quasi-public vs. true venture

Large deal M&A is creating a bifurcation in deal activity

Manager selection is key when investing in VC; top quartile significantly outperforms

Valuations are elevated, with significant late-stage valuation expansion

Private Credit

Private credit assets have grown rapidly but are showing signs of a mid-cycle plateau

One source of slowing growth is recent redemption requests

Over the long run, private credit is influenced by private equity invested capital

Private credit strategies historically outperformed public fixed income sectors

Non-traded private credit drawdowns are moderated by buy-and-hold nature

Even with recent noise, risk premium provides a backdrop for attractive relative yields

Lower volatility, high income led to more consistently positive results for private credit

Direct lending has offered favorable returns versus public comparable benchmarks

Despite some spread compression, direct lending retains a premium

Coverage ratios are strengthening which should provide comfort in credit quality

Even with steady defaults, signs of stress exist seen with an increase in downgrades

The emergence of private asset-based lending unlocks a large opportunity set

Commercial Real Estate

CRE is a large, diversified asset class with growing appeal for private capital

CRE has had a low correlation to and better risk-adjusted returns than public markets

Less frequent drawdowns has helped deliver more consistent returns

NOI* growth has outrun inflation and has been a stable source of return

Transaction volumes are recovering and should help with more realistic pricing

A pricing recovery has flattened out across major property types

Cap rates reset as the Fed raised interest rates, but remain low relative to bond yields

Despite above-inflation NOI growth, the pace of growth has moderated

Value-add funds can help improve NOI given the need to improve aging structures

Supply and demand dynamics remain relatively healthy

Most CRE sectors have solid fundamentals, except for office where weakness persists

Lower use of leverage and higher debt coverage ratios offset some of these concerns

CRE debt funds with ample dry powder should help partially fill the void

Infrastructure & Other Real Assets

Infrastructure is a diverse asset class primarily across North America and Europe

Infrastructure includes four categories of infrastructure with varying characteristics

Private real assets have produced superior risk-adjusted returns with low correlation

Real assets have delivered returns outpacing developed market inflation

Real assets provided higher returns during periods of moderate to high inflation

Global economies are set to spend $3.2T per year on infrastructure through 2040

There is a widening gap between projected infra spending and societal needs

AI buildout and data center growth – a prominent theme in infrastructure

Secondaries

The PE exit overhang is growing, with a significant backlog of unrealized value

Distributions are recovering but still suggest a challenging realization environment

Secondaries are one option to alleviate the overhang, but are small vs. primary capital

Growth in PE created a need for secondaries, other asset classes are now following

Secondary discounts remain attractive on a longer-term view

Hedge Funds

Hedge funds are seeing the largest inflows in decades

Which is leading to a strong outlook for inflows

Industry assets under management are at record levels

Different hedge fund strategies can help position for various market conditions

60/40 portfolios are no longer providing the “auto-diversification” benefits for clients

Historically, adding hedge funds to traditional portfolios has improved risk/return

Hedge funds have delivered material outperformance relative to 60/40 portfolios

Hedge funds have generally performed better in periods of elevated rates above 2.5%

HF opportunities increase in periods of higher dispersion and lower correlation

Credit spreads have widened due to uncertainty and rising distress in private credit

Volatility can be a driver of returns for hedge funds

Event driven activist campaigns are increasing and have generated excess return

Index Definitions

Index Definitions (continued)

Index Definitions (continued)

Important Information