Hedge funds can offer attractive returns for the level of risk taken by identifying promising opportunities across markets while managing the risk of potential market downturns. In an environment of AI market leadership and more concentrated markets, we focus on strategies such as equity market neutral funds, which seek to profit from both rising and falling stocks by balancing long and short positions; discretionary macro funds, where managers invest based on their views of global economic trends; and multistrategy funds that combine several approaches. We also see fresh opportunities in merger arbitrage, a strategy that aims to profit from price changes in companies involved in mergers and acquisitions (M&A), supported by a resurgence in M&A activity.
Private equity stands to benefit from lower interest rates, reduced regulation, and more appealing entry valuations. According to the latest MSCI Burgiss pricing data, global LBO (leveraged buyout) multiples were revised higher, reaching approximately 11.5x EV/EBITDA at the end of the first quarter of 2025. This is broadly in line with 2022 levels but below public market valuations. We expect an acceleration in distributions—cash returned to investors—and exits, meaning sales of portfolio companies, which should help ease the buildup of aging holdings. Our preference is for middle-market, value-oriented buyout strategies and secondaries funds, which purchase existing private equity investments, with an emphasis on regional diversification in Europe and Asia.
Private credit continues to offer compelling long-term income, though tighter credit spreads and pockets of financial stress or defaults warrant an up-in-quality bias and increased selectivity. We prefer sponsor-backed loans, which are made to companies owned by private equity firms, as well as senior loans that have priority in repayment if a company faces financial trouble. Our focus is on the most fundamentally sound loans in the larger mid-sized company segment and in less cyclical sectors.
Infrastructure assets remain a compelling opportunity in our view. Their high barriers to entry, monopolistic positioning, and strong ability to pass on costs make them resilient to economic slowdowns and positively correlated with inflation. Private infrastructure investments have historically demonstrated resilience, with annualized returns of 7.1% in 2024 and 10.9% on a 10-year rolling basis, based on Cambridge Associates data. We favor diversified, core and core-plus assets—meaning infrastructure with stable or moderate growth in cash flows—in non-cyclical sectors, focusing on predictable income streams that rise with inflation.
Real estate in the US is showing signs of stabilization and recovery, with net asset values holding steady since late 2024 and investment activity picking up. Overall, we see further improvement ahead for the asset class, with core/core-plus strategies in logistics, data centers, and living sectors offering the most robust fundamentals and attractive risk-adjusted returns.
Before investing, we recommend investors consider the risks associated with alternatives, including illiquidity, limited transparency, and the use of leverage.
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