Aug 14, 2026
Asset-backed finance (ABF) may help diversify risk over time
Broadening Growth and Diversification: Alternatives for the Decade Ahead
Published November 3, 2026
J.P. Morgan Asset Management’s 2027 Long-Term Capital Market Assumptions describe a decade shaped by three forces: economic nationalism, technology adoption and capital rewiring. A $15 trillion global capex supernova supports the best developed world growth outlook in 15 years and a constructive backdrop for asset class returns. At the same time, the confluence of these forces also brings more volatile inflation, higher-for-longer rates and a less reliable stock-bond hedge. The result is greater opportunity to diversify, and greater reward for doing so.
Some of the most sophisticated investors are already positioning for this world. According to J.P. Morgan Private Bank's 2026 Global Family Office Report1, alternative investments make up ~35.5% of the average family office portfolio. That share is still growing: 37% of family offices plan to increase private equity exposure over the next 12 to 18 months, the highest among all asset classes.
For these investors, alternatives are a strategic pillar rather than a tactical satellite. We agree. Today, we see two strategic roles for alternatives within portfolios. The first is broadening the growth engine beyond a concentrated public equity market. The second is extending diversification beyond core fixed income in a world of higher inflation and rate volatility. In this piece, we set out how to build (and fund) this allocation, and where our conviction lies by asset class.
Why own alternatives in a portfolio today? Growth and diversification
Broadening sources of return beyond concentrated public equity markets.
Roughly 60% of the S&P 5002 price return, almost 70% of earnings growth, and over 80% of capex/R&D growth has been driven by AI since the beginning of 20243. While we remain constructive on the long-term potential of AI, this historic run also means a majority of a typical portfolio is riding on a single theme.
Private equity offers differentiated exposure by sector and geography. A larger portion of global private equity sits outside the U.S. vs. public market indices, and a higher portion outside of technology. The opportunity set is also larger as companies stay private for longer and at larger sizes. Roughly 85% to 95% of companies globally with more than $100 million in revenue are private4, and the median tech company at IPO is now ~1.5x older and ~4.5x larger than in the 1990s.5 As AI moves beyond the technology sector and into the real economy, the productivity gains should increasingly show up in services businesses beyond the tech sector. That is where buyout portfolios are concentrated, and where private equity managers can put AI to work directly across their portfolio companies.
Venture and growth go a step further, giving access to the companies building the next wave of innovation, from areas like AI-native applications (enterprise and physical automation) to defense technology.
Private equity offers geographic and sector diversification versus public benchmarks
Share of exposure outside the U.S. and outside the technology sector, %
Source: MSCI Private Capital Benchmarks Report, Bloomberg Finance L.P., J.P. Morgan Private Bank. Data as of October 2026. Tech+ = technology sector plus AMZN, GOOGL/GOOG, META and TSLA. It is not possible to invest directly in an index.
“Diversifying the Diversifiers” now imperative in a world of higher rate and inflation volatility
The negative stock-bond correlation many portfolios have relied on can no longer be assumed; the LTCMAs project a correlation of roughly 30% between U.S. large cap equities and U.S. aggregate bonds over the forecast horizon, with forecasts raised every year since 2023. Core bonds remain the primary hedge against slowing growth, but they cannot carry the diversification burden alone in an environment of higher rate and inflation volatility.
Diversification today isn’t about owning more, it’s about owning different.
- Hedge Funds offer returns built for volatility and dispersion: less-directional hedge funds like macro and relative value can capitalize on market swings and mispricings to generate alpha.
- Private Credit exposure across senior-secured direct lending, asset backed finance, secondaries, and opportunistic/distress provide multiple levers for returns beyond public fixed income.
- Core Infrastructure adds multi-year, contracted, inflation-resilient cash flows tied to essential assets like grids, pipelines, and transport.
- Core Real Estate can provide income with a recovery tailwind. Rents can rise with prices. And after a significant repricing, U.S. commercial real estate appears to be in the early stages of a recovery, but the recovery will likely be sector-specific (vs. broad-based).
Getting the plumbing right: Funding, pacing and structure
Start with the role, then find the source. Alternatives may replace existing exposures, not sit on top of the portfolio as a separate risk bucket. Growth alternatives (private equity, growth equity and venture) are funded primarily from public equities. Income and diversifying alternatives are funded primarily from fixed income: private credit from public extended credit, hedge funds from a blend of equities and fixed income depending on strategy beta, and real assets from core fixed income. Strategic liquidity should be protected first, and every funding decision assessed at the total portfolio level; hedge funds funded entirely from core bonds, for example, may dilute the portfolio's recession hedge.
A long-term program, not a one-time trade. We would set an explicit illiquidity budget that accounts for unfunded commitments, commit steadily across vintage years and use secondaries to mitigate the J-curve. These investments can limit access to capital, involve uncertain valuations and result in losses, so they require an appropriate time horizon and careful manager selection. Manager selection is the lever that matters most. Our return assumptions reflect the median manager, and we expect dispersion to widen as larger flows raise the premium on outperforming it. Index-level numbers tell you where the water line sits; manager selection determines whether you are above or below it.
Evergreen or drawdown? Both, used deliberately. Our framework (diagram below) matches structure to strategy. Evergreens suit strategies with recurring income or natural self-liquidation: senior direct lending, core real estate and infrastructure, large-cap buyout and secondaries. Drawdowns suit strategies with lumpy or uncertain deployment and exit timelines: venture, growth, mid-market buyout, opportunistic real estate, greenfield infrastructure and distressed credit. Evergreens accelerate exposure early, while disciplined drawdown programs tend to pull ahead over time; for many institutions, a hybrid will be the right answer.
Evergreen and Drawdown High Level Framework
We use Drawdown and Evergreen funds together to meet the needs of our clients
Source: J.P. Morgan Global Alternative Investment Solutions, October 2026.
Putting it into practice: Conviction by asset class
Private equity (including venture and growth)
PE and VC/Growth remain critical components of a core private markets allocation, but the environment demands selectivity. Within PE, we favor diversification across sector, size, and geography—balancing tech with industrials/financial services; mid-market with large buyout; and the US with Europe, India, and Japan. Within VC, we are constructive on managers aligned to secular themes with long-term tailwinds, such as applied AI and security. Across both, secondaries deserve a dedicated allocation: they mitigate the J-curve, provide visibility into underlying assets—reducing blind pool risk—and offer diversification across vintage year and manager.
Private credit: Taking a portfolio approach
Private credit remains a structural allocation, but the asset class is more than just corporate direct lending. Within direct lending, we favor managers with diversified sector exposure, seniority in the capital structure, and larger borrowers (EBITDA >$50M). We have conviction in three complements to corporate direct lending. Opportunistic and distressed strategies offer counter-cyclical exposure to micro-cycles in software, healthcare and consumer, and among smaller borrowers. Asset-backed finance moves collateral away from corporate cash flows, with self-amortizing structures, shorter duration and low correlation to direct lending and public markets. Secondaries offer a compelling entry point, mitigate the J-curve and provide visibility into underlying holdings. Manager selection is decisive across all segments.
Private infrastructure: Contracted income meets the power super-cycle
Core infrastructure presents a unique opportunity to access both consistent returns (backed by contractual, inflation-resilient cash flows) and multi-year secular trends (power demand growth, resilient infrastructure escalating to a matter of national security). The key is disciplined subsector selection and partnering with experienced managers who have navigated prior cycles. Within infrastructure, while constructive on power, core exposures such as asset leasing — cargo/LNG ships, railcars, chassis — and industrial infrastructure are critical complements, providing the diversification, income reliability, and inflation resilience that make infrastructure a durable portfolio building block. Within power, transmission and grid remain the cleanest expression of the theme — decades of underinvestment have created a $550bn+ capex opportunity that utility balance sheets cannot fund alone, offering long-duration, regulated cash flows. Midstream is well-positioned as natural gas demand grows and LNG exports rise.
Private real estate: A selective, fundamentals-driven recovery
US real estate is undergoing a selective, fundamentals-driven reinvention. The conditions for a sustained recovery are increasingly in place — improving income growth, rising transaction volumes, and a capital gap that is creating attractive entry points across both equity and credit. Investors who are selective about sectors, geographies, and asset quality are well-positioned to capture the next leg of returns. We are constructive on industrial real estate and pocket of retail (including grocery/shadow-anchored retail).
Hedge funds: A critical diversifier, with alpha tailwinds
Within hedge funds, we are most constructive on strategies well-positioned for the current environment: relative value and macro (e.g., statistical arbitrage, discretionary macro), as well as merger arbitrage, supported by an improving dealmaking environment. High dispersion enhances alpha opportunities for stock-pickers and relative value managers, while elevated volatility creates additional trading opportunities across systematic strategies. Additionally, beyond hedge fund's diversification role, they also offer a powerful vehicle for capturing thematic opportunities. Implemented through hedge funds, thematic investing becomes a dynamic, risk-aware approach to capturing alpha, combining long-term structural themes (such as Japan corporate governance, biotechnology, quant, and artificial intelligence).
The question is no longer "why," but "how"
For investors comfortable with the trade-offs of alternatives, the question has shifted from "Why own them?" to "What is my portfolio missing without them?"
What matters now is the role each allocation plays (growth engine or diversifier), how it's funded and how the program is built. Above all, manager selection is key given the wide gap between top and bottom performers. Diversifying across managers, vintages and strategies, and working with teams that have been through full cycles, is essential.
Contact your J.P. Morgan team about the role alternatives could play in your long-term strategy.
-
“Alternative investments counted as private investments and hedge funds.
-
“It is not possible to invest directly in an index.”
-
Bloomberg, J.P.Morgan Asset Management, October 20th, 2026
-
EQT, 2026
-
J.P. Morgan Private Bank, Jay Ritter, ‘Initial public Offerings: Median Age of IPOs Through 2025”, latest available as of October 2026.
KEY RISKS
JPMAM Long-Term Capital Market Assumptions
Given the complex risk-reward trade-offs involved, we advise clients to rely on judgment as well as quantitative optimization approaches in setting strategic allocations. Please note that all information shown is based on qualitative analysis. Exclusive reliance on the above is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. Note that these asset class and strategy assumptions are passive only – they do not consider the impact of active management. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The outputs of the assumptions are provided for illustration/discussion purposes only and are subject to significant limitations.
“Expected” or “alpha” return estimates are subject to uncertainty and error. For example, changes in the historical data from which it is estimated will result in different implications for asset class returns. Expected returns for each asset class are conditional on an economic scenario; actual returns in the event the scenario comes to pass could be higher or lower, as they have been in the past, so an investor should not expect to achieve returns similar to the outputs shown herein. References to future returns for either asset allocation strategies or asset classes are not promises of actual returns a client portfolio may achieve. Because of the inherent limitations of all models, potential investors should not rely exclusively on the model when making a decision. The model cannot account for the impact that economic, market, and other factors may have on the implementation and ongoing management of an actual investment portfolio. Unlike actual portfolio outcomes, the model outcomes do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. The model assumptions are passive only – they do not consider the impact of active management. A manager’s ability to achieve similar outcomes is subject to risk factors over which the manager may have no or limited control.
The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield are not a reliable indicator of current and future results.
All third-party companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.
Diversification and asset allocation does not ensure a profit or protect against loss.
Private investment funds (including, without limitation, hedge funds, funds of hedge funds, private equity funds, real estate funds, etc.) are subject to special risks, including risk of loss of the entire investment and is suitable only for investors with sufficient knowledge and sophistication to evaluate the merits and risks of such investments. As a reminder, private investment funds often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and may not be required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. Distributions are not guaranteed and may be modified at the Fund Board’s discretion. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees (performance fees in addition to management fees). Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For comprehensive details around unique set of risks for specific alternative investments, please refer to the applicable offering memorandum.
IMPORTANT INFORMATION
After 31 years of LTCMAs, this edition is unlike any other — capturing an economy being rewired right before our eyes.
you may also like
Experience The Full Possibility Of Your Wealth
We can help you navigate a complex financial landscape. Reach out today to learn how.
Contact us
