Alternative Investments

At mid-year, alternatives shine in a volatile market

Economic uncertainty may spark opportunity for select alternatives

Sitara Sundar, Head of Alternative Investment Strategy & Market Intelligence

Published July 17, 2025

The first half of 2025 has been dizzying even for many seasoned investors. U.S. economic and earnings data have been resilient, and deregulation has gained momentum. But that’s been coupled with elevated trade and tariff policy risks, geopolitical uncertainty and artificial intelligence (AI)-led disruption.

We believe this barrage of contradictory indicators will persist into 2H25. We also see the opportunity for growth and return as dealmaking rebounds and as experienced managers take advantage of both mispricing and larger secular trends.

These opportunities can best be accessed through alternative investments. As today’s market environment illustrates, alternatives can be a critical complement to the traditional 60/40 portfolio, providing income, diversification and access to secular growth.

This mid-year check-in on alternatives focuses on our key high-conviction themes for the second half of 2025 and beyond. These include portfolio resilience, opportunities in liquidity providers, tapping into secular growth backed by multi-year trends in AI and sports, and the next phase of the real estate evolution.

Building portfolio resilience

Given the wide range of potential outcomes for global economic growth, inflation and interest rates, we believe portfolio resilience should continue to be a top priority for investors.

Portfolio resilience can be buttressed by adding return streams that tend to be less correlated with those of a traditional 60/40 portfolio; by mitigating downside risk and by capitalizing on the distinctive opportunities presented by volatility.

To support investors in attaining these goals, our highest conviction investment ideas focus on hedge funds and infrastructure:

Hedge funds can add uncorrelated return streams

Consider leaning into hedge funds, such as relative value and discretionary macro hedge funds. These capitalize on elevated volatility, and the resulting dispersion in asset prices, and insulate in equity market selloffs. They may also provide absolute returns in excess of core bonds

Less correlated hedge funds have served as a buffer across equity drawdowns

Relative value and macro hedge funds have historically offered protection in most market selloffs

Source: Bloomberg, HFTI; data as of June 2025.

Past performance is no guarantee of future results. It is not possible to invest directly in an index.

Infrastructure assets¹ tend to provide inflation-resilient income and durable returns

Tariffs, and heightened geopolitical uncertainty in the Middle East, have both increased the probability that inflation and interest rates will likely remain elevated. That makes it imperative that a portion of a portfolio’s income is designed to outpace inflation. Core fixed income alone may not be enough of a stabilizer in this new market regime.

One potential remedy: infrastructure.

Infrastructure provides the potential for consistent returns supported by long-term, inflation-resilient² contracted cash flows, while giving investors exposure to growth-backed secular tailwinds. Durable long-term themes of this sort include an acceleration in the demand for power; the need for revitalization of U.S. infrastructure, and reshoring.

Since 2Q 08 to 3Q 24, core infrastructure’s average annualized returns have been in the high single digits to low double digits. Those returns prevailed across various macroeconomic and inflationary regimes.

Infrastructure assets’ return, income and capital appreciation, vs. a global balanced portfolio

Infrastructure assets can add stability to a balanced stock-bond portfolio

Source: Bloomberg, MSCI Global Private Quarterly Infrastructure Asset Index; 2025.

Past performance is no guarantee of future results. It is not possible to invest directly in an index.

Moreover, investors have historically had low allocations to infrastructure. J.P. Morgan Private Bank’s 2024 Global Family Office Report found that infrastructure represented less than 1% of assets under supervision in 2024.³

As the need for consistent, inflation-resilient income becomes a top priority in this cycle, we believe investor allocations to infrastructure will move higher.

Leaning into liquidity

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Traditional dealmaking activity (IPOs, strategic M&A) has been muted by the rise in economic uncertainty, equity market volatility and still-elevated rates. We do see green shoots for dealmaking activity in 2H25, as momentum is building for bank capital reform and lower rates. We also believe private equity (PE) managers’ desire to work through multi-year backlogs (to spur distributions to investors) will encourage exits through nontraditional avenues, such as secondary markets.

Secondary transactions can be led either by limited partners (LPs), allowing investors to buy and sell existing stakes in private equity or other alternative investment funds, or by general partners (GPs), allowing GPs to sell stakes in portfolio companies to other funds.

The global secondary market saw significant growth in 2024, with volumes exceeding $160 billion—a 45% increase over the previous year. Some 50% of LP transactions were driven by the partners’ need for liquidity and portfolio rebalancing; 40% of LPs were participating in the secondary market for the first time.⁴ GP-led transactions reached record levels. And single-asset deals surpassed multi-asset ones, indicating a shift towards nontraditional exit strategies.⁵

We expect secondary market volume to continue to grow. In addition to the significant backlog faced by managers, PE assets are aging. The median holding period before a buyout-backed exit rose to about six years in 2024, from about four years in 2005. Distributions as a percentage of fund net asset values are at their lowest since 2009.⁶

Secondary volumes and global buyout distributions

Muted dealmaking, aging PE assets and lower distributions create opportunity in secondaries

Source: Bain Global Private Equity Report, Jefferies Global Secondary Market Review, 2025

We also believe LPs will continue to use secondary markets to rebalance their portfolios. While endowments and foundations are currently a minor portion of secondary transaction volume, the segment may grow as secondaries become a portfolio management tool and uncertainty around federal funding persists.

While current market conditions provide a catalyst for investing in secondaries, a strategic allocation to secondaries may also be well-advised. Secondaries mitigate the J-curve effect inherent in drawdown funds (early returns are negative as capital is called, and become positive as capital is distributed). They also give investors visibility into a strategy’s underlying assets, mitigating blind pool risk. And they can provide meaningful diversification across vintage year and managers.

Secular growth potential: AI and sports

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We see a significant opportunity for investors in the next phase of AI, which we believe is a multi-year, secular growth trend backed by innovation. The next phase offers substantial alternative investment opportunities, such as in tech-focused private equity, growth equity and venture capital funds. These funds are supporting AI development seeking to enhance efficiency, innovation, productivity and value creation across industries.

One caveat: The ultimate winners of the AI race may not yet exist. As noted in our 2025 Mid-year Outlook, cloud computing and the transition to mobile phones in the 2010s created over 30 companies with more than US$1 billion in annual revenues, accounting for over US$1.9 trillion in public market capitalization.⁷ The total addressable market for AI-related applications could surpass both these transitions, largely targeting employee compensation costs.

We are focused on opportunities at the intersection of growth and profitability within private equity and buyout funds. Enterprise software, with its subscription model, has historically generated recurring revenues and meaningful growth potential. We believe AI-enabled enterprise software will drive stronger growth by supporting decision-making, streamlining operations and enhancing productivity. Access to this trend comes through private markets: About 95% of software companies are privately held.⁸

Although still in the early stages, we anticipate that both physical automation (e.g., robotics) and services automation will offer substantial investment opportunities across industries. U.S. industrial companies are set to allocate 25% to 30% of their capital spending to automation over the next five years, up from 15% to 20% over the last five years.⁹

Services automation, powered by machine learning and agentic AI, is transforming customer interactions and service delivery, offering personalized experiences and reducing operational costs.

Given the unusual speed of disruption enabled by AI and the likelihood that some startups will vanish altogether while others succeed brilliantly, manager dispersion will remain wide, making manager selection even more critical.

Investment plays in sports

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Sports dealmaking has emerged as a bright spot in an otherwise subdued transactional environment. The sports ecosystem offers the potential for return streams that are less correlated with public and private debt and equity markets. It also has a track record of strong, consistent growth backed by recurring revenue, a non-cyclical business model and global demand.

Sports-related deals have grown in both number and volume this year, a trend expected to continue. Franchises are contending with funding gaps as team owners seek liquidity, real estate development grows around stadiums and growth and operational enhancements require increased capital. Institutional capital and ownership have stepped in.

Additionally, the rise of streaming and the increasing value of live entertainment are likely to expand the number of media rights buyers. This is an important development: Media rights account for a majority of the revenues for major sports leagues (the NBA, NFL, Premier League and MLB).

Multi-year trends in real estate

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Housing affordability in the U.S. is at a multi-year low, rivalling levels last seen in the late 1980s.¹⁰ The median age of a first-time home buyer is now about 38, compared to 33 five years ago and 28 in the early 1990s.¹¹

We believe affordability will continue to be a challenge, with major implications for U.S. real estate markets, as individuals and families to turn to renting rather than owning. We also expect those in search of housing to reassess their geographic priorities.

These circumstances create a noteworthy opportunity in rental housing. The median monthly cost of a U.S. single-family rentals is now $2,305, compared with a monthly cost to own of $3,405.¹² With renting meaningfully less expensive than owning, we believe the demand for rental housing will continue to increase. This comes at a time of falling housing supply, which may create a dynamic that allows owners to continue to push rents higher.

We also see a multi-year investment opportunity in the re-industrialization of the U.S., as the country’s manufacturers bring production closer to home. Industrial real estate presents a compelling opportunity, driven by robust demand for manufacturing facilities, distribution centers and logistics hubs.

Looking forward

At mid-year, we find the argument for alternative investments, as a powerful complement to the traditional 60/40 portfolio, to be as strong—if not stronger—than ever. As always, due diligence and selectivity are paramount in choosing the right investment partners and opportunities.

Chosen carefully, we believe alternatives have the potential to ride out significant and persistent day-to-day volatility, helping to bring stability, diversification and resilience to portfolios.

We can help

As one of the largest alternatives investing platforms, J.P. Morgan’s carefully curated set of high conviction opportunities, backed by rigorous and detailed due diligence, is designed to support you in realizing your financial goals. To learn more about the latest opportunities and how they may fit in your financial plan, speak with your J.P. Morgan team.

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¹Infrastructure assets are essentials for modern daily life: Energy, transportation, logistics, digital and communications infrastructure, data centers and industrial infrastructure.

²Global core infrastructure returns have consistently averaged high single digit to low double digit annualized returns across inflationary regimes. Based on MSCI Global Private Quarterly Infrastructure Asset Index (2Q08–3Q24)

³J.P. Morgan Private Bank’s 2024 Global Family Office Report, 2024

⁴“Secondary Market Overview–Full Year 2024,” Campbell Lutyens, February 2025.

⁵“Global Secondary Market Review,” Jefferies, January 2025.

⁶“Global Private Equity Report 2025,” Bain & Company, 2025.

⁷Sonia Huang and Pat Grady, “Generative AI’s Act o1,” Sequoia, October 9, 2024. Companies used for this (non-exhaustive) statistic: Airbnb, Atlassian, Cloudflare, Crowdstrike, Datadog, Docusign, Doordash, Dropbox, Dynatrace, Elastic, Lyft, MongoDB, Okta, Palantir, Paloalto, Paycom, Paylocity, Pinterest, Playtika, Robinhood, Salesforce, Shopify, Snapchat, Snowflake, Spotify, Thetradedesk, Twilio, Uber, Unity, Workday, Zoom, Zoominfo and Zscaler.

⁸Vista Equity Partners, March 2025.

⁹Ajewole, F., Kelkar, A., Moore, D., Shao, E., & Thirtha, M. Unlocking the industrial potential of robotics and automation. McKinsey & Company, 2023.

¹⁰National Association of Realtors (Housing Affordability Composite Index). March 31, 2025.

¹¹National Association of Realtors, December 31, 2024.

¹²JP Morgan Alternative Asset Management – Real Estate Americas. March 2025. Single Family Rent represents median market asking rent for move-in ready 3-bderoom single family homes. Ownership costs is based on monthly housing payment and maintenance costs.

Key Risks

Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments involve greater risks than traditional investments and should not be deemed a complete investment program. They are generally not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain. The value of the investment may fall as well as rise and investors may get back less than they invested. • Real estate, hedge funds, and other private investments may not be suitable for all individual investors, may present significant risks, and may be sold or redeemed at more or less than the original amount invested. Private investments are offered only by offering memoranda, which more fully describe the possible risks. There are no assurances that the stated investment objectives of any investment product will be met. Hedge funds (or funds of hedge funds): often engage in leveraging and other speculative investment practices that may increase the risk of investment loss; can be highly illiquid; are not required to provide periodic pricing or valuation information to investors; may involve complex tax structures and delays in distributing important tax information; are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any hedge fund.

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Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments involve greater risks than traditional investments and should not be deemed a complete investment program. They are not tax-efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain. The value of the investment may fall as well as rise and investors may get back less than they invested.

Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns.

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