This analysis was originally written for our 2026 Long-Term Capital Market Assumptions. You can read the full report here.

Over our 10- to 15-year investment horizon, the private sector response to greater policy uncertainty helps inform our baseline private market and alternative investment assumptions. These trends are now having a lasting impact on valuations and leverage, creating a diverse array of new investment opportunities. Broadly, we forecast three themes that will characterize investing over the coming decade: economic nationalism, fiscal activism and technological adoption and deployment.

With new barriers being imposed on trade and migration, economic nationalism is here to stay – raising inflationary pressures. At the same time, fiscal activism is becoming more entrenched as globalization slows and governments seek to spur local growth by selectively cutting taxes or increasing spending. These are among the themes we identified last year that remain relevant.

As these two forces impact macroeconomic volatility (especially inflation volatility) and interest rates, we expect to see even greater spending on technology and artificial intelligence (AI). Furthermore, technology investment and AI will continue to shape the investment opportunity set and how investors approach putting money to work. Capital is already in motion – and alternative asset markets continue to represent an attractive destination.

In this edition, rather than focusing on the details that drive our long-term return forecasts for each asset type or strategy, we assess the practical implications of three key long-term trends – economic nationalism, fiscal activism and technology adoption – on different private markets and alternative asset strategies (Exhibit 1). Some markets will face new headwinds; others may benefit from increasingly favorable tailwinds. Broadly, however, these trends benefit most of our private market return assumptions (Exhibit 2).

Over the past 12 months, the global policy environment has evolved rapidly, particularly in the U.S. Even as significant increases in tariffs, trade barriers and other unorthodox fiscal and monetary policies have created risks, they have also sparked more attractive entry points for some alternative assets, reinforcing the idea that volatility and risk can generate opportunity.

In our view, tighter trade barriers could dampen economic growth and push up inflation over our forecast horizon – a combination of forces that would have a mixed impact on real assets such as real estate and transportation. But looser financial regulation, particularly in the U.S., could provide a silver lining and create more favorable market conditions for other alternatives, especially private equity and hedge funds.

A shifting landscape of policy risks

Global real estate, the third-largest asset class after public equities and fixed income, warrants close attention as market dynamics change. Our 2026 long- term return assumptions for real estate – forecast by region – are mostly stable relative to last year, reflecting still-attractive starting yields, which, along with an expectation of modest rental growth over our forecast horizon, could help offset rising fiscal risks and elevated macroeconomic volatility (Exhibit 3). We slightly raise our core long-term U.S. real estate annual return assumption to 8.2%, up from 8.1% last year.¹

Evolving policy dynamics will have the most significant impact at the sector level. Industrial real estate has been affected by its exposure to tariffs and global trade pressures, but these challenges appear to be priced in. Furthermore, we see an emerging opportunity in manufacturing assets and warehouses, especially if current efforts to reshore production and restructure global supply chains succeed – even if continued policy uncertainty raises some questions about this trend’s durability.

These new fiscal policies may also impact the outlook for asset markets through the currency channel, as growing concerns about the U.S. dollar – and the overall trajectory of the U.S. economy – could materially affect global capital flows. This should benefit international markets at the expense of the U.S. Although we adjust our European and Asia-Pacific core real estate long-term return forecasts, to 6.9% and 8.4%, respectively, a weaker than expected U.S. dollar could help enhance these returns over the forecast horizon. This environment of a weaker dollar should also be supportive for commodities.

We do, however, expect changing trade policy to have a direct impact on timberland, a market that is tangential to real estate but not wholly unrelated to it. Tariffs already appear to be reshaping the export market for lumber globally. Although tariffs are nothing new for the industry – there have been duties on Canadian softwood lumber for years – the knock-on effects of sustained policy uncertainty are not yet clear.

The silver lining of changing global policy

We expect that changing – and more aggressive – policy decisions will begin to shape the macroeconomic environment over our investment horizon and potentially drive returns for some real assets, such as global transport and commodities. Separately, the possibility of future financial sector deregulation may prove supportive for financial alternatives, especially private equity and hedge funds.

We assume in our forecasts that the most direct beneficiary of more protectionist trade policies will be transportation assets. As supply chains change, trade barriers rise and the world becomes increasingly multi- polar, our 2026 global transport return assumption edges higher, to 7.9%, from 7.8% last year. Although this is only a modest increase, our forecast returns for the asset class have ticked up by 0.5 percentage points each year over the past four years – a change that reflects the significant restructuring of global trade since the pandemic (Exhibit 4).

The essential nature of global trade, most of which is seaborne, has provided a tailwind for shipping assets, but valuations, which have not reset post-Covid, could become a headwind – a fact that investors need to consider. Even under a more protectionist regime, goods will still need to be moved, but some trade routes may have to be realigned. We are already seeing this shift occurring across Asia; in the U.S., freight rail assets may benefit as well as more goods are moved domestically.

As noted earlier, the shift toward protectionism may impact demand for certain real estate assets in the industrial sector that are directly tied to the movement of goods, such as warehouses and logistics.

Gold continues to shine

As policy changes prevail, our gold forecast rises to 5.5% from 4.5%. If, as we expect, interest rates decline over the coming decade, gold may benefit from the reduced opportunity cost of holding a nonyielding asset. Healthy global nominal GDP growth often implies firm inflation dynamics, reinforcing gold’s role as a store of value and a hedge against lower real yields.

Gold demand is also receiving support from ongoing central bank accumulation as policymakers diversify reserves amid geopolitical and U.S. policy uncertainty. Central bank accumulation (policy demand) reflects structural, nonspeculative buying by central banks; this has become a dominant source of marginal and price-insensitive demand, reshaping market dynamics since 2010 (Exhibit 5). A weaker dollar and central banks’ continued reserve diversification should continue to support structural demand for gold.

Central bank demand tends to have a larger market impact than consumer demand because it is concentrated and price-agnostic, with purchases often executed in large, coordinated lots. However, we expect consumer (retail) demand from emerging markets to remain resilient, supported by rising incomes and a strong cultural affinity for gold in countries such as India and China. We expect gold to maintain its status as a geopolitical hedge and safe haven, sustaining its elevated price; gold is also likely to benefit in an ongoing environment of heightened fiscal activism.

Financial deregulation: A silver lining?

Over the coming 10 to 15 years, we expect governments to attempt to spur economic activity by loosening some financial sector regulations. If, as we predict, rules are relaxed, the intersection of bank lending and private credit will become a very competitive space. Banks may try to reclaim lost market share from direct lenders – and take advantage of the higher yields available across what would be a more bespoke market. We also see scope for hedge funds to enter this space in a more meaningful way.

This view, however, includes a degree of conjecture. Some of the growth we have seen in private credit has stemmed from U.S. regulation, which made it more expensive for banks to extend middle and lower middle market loans; we have also seen meaningful growth in Europe, which has always had a more bank lending- driven market. We have yet to see a material change in capital ratios, and if base rates decline over the forecast horizon, as we expect, it will be more difficult for banks to compete. Recent moves into direct lending by traditional banks seem to be more about retaining existing customers than displacing private lenders, suggesting that this trend may be less durable than some market participants believe.

Future deregulation would also likely impact our hedge fund return assumptions, particularly if it spurred increased M&A activity. If this happens, event-driven strategies, including merger arbitrage, would benefit. At the same time, shifting fiscal and monetary policy could translate into higher volatility in certain markets, which would be supportive of hedge fund returns (Exhibit 6). These drivers lead us to modestly improve our long-term return forecast: Median manager return assumptions for diversified hedge funds rise 0.3 percentage points, to 5.3%.

Finally, if the U.S. eases long-standing restrictions on the inclusion of alternative assets in retirement plans, it could open the door for broader adoption of these strategies, providing a short-term boost to returns. Over the long term, however, increased access could simultaneously drag on potential returns. Furthermore, while financial deregulation that allows for more competition, liquidity and access will be a positive development in the long run, it will be important for investors to monitor any short-term impacts, particularly related to risk-taking and any signs of excess.

Fiscal activism is playing an ever more critical role in shaping the investment landscape. Not only do we expect greater government spending to be met with an increase in private sector capital spending, we anticipate that this deepening of the capital base will allow for more productivity-driven economic activity. A clear linkage via the interest rate channel connects this theme to capital markets, and – with rates declining over our forecast horizon – we see both headwinds and tailwinds for returns across private markets and alternative assets.

In the decade prior to the pandemic, many central banks in developed markets held policy rates near zero, but the higher rate environment of the past few years has led to a recalibration of valuations, particularly in real estate.

In response, investors have demanded higher yields. At the same time, higher base rates have been supportive for floating rate assets, including private credit.

Looking ahead, we expect stable-to-lower interest rates globally over our forecast horizon. This should permit real estate risk premia to normalize to the levels that preceded the global financial crisis, contributing to yield compression from current levels in markets such as Europe – a shift that will in turn help support returns and improve both real estate transaction volumes and valuations. In private equity, this anticipated decline in rates should have a similar effect on deal volumes and valuations while allowing leverage to make a more positive contribution to returns. Barring a return to zero interest rates, which is not our view, hedge fund performance should benefit, too.

The impact of declining rates

The global commercial real estate market has stabilized, but transaction volumes are still low. While markets may have found a floor, they could still benefit from a bounceback as higher volumes lead to more optimistic underwriting assumptions. Against this backdrop, commercial mortgage loan (CML) spreads have tightened – potentially reflecting this expectation – leaving pricing more attractive for borrowers but weighing on prospective returns for lenders. These dynamics inform our U.S. CML return assumption of 6.2%, down just 0.2 percentage points from 6.4% last year.

Our rate expectations lead us to lower our direct lending return assumption, to 7.7%, from 8.2% in the last edition. Yields have been inflated by base rates’ higher levels over the past few years, allowing for tighter spreads globally; we see spreads widening over the forecast horizon not only due to the decline in base rates but also to an increase in credit costs (Exhibit 7). These higher yields have also weighed on private equity deal activity, and we see this interplay between credit financing costs and PE deal activity as a persistent feature of our forecast.

If, as we predict, U.S. rates continue to ease, we anticipate that approximately half of the financing for PE transactions will come from private credit funds over the next 10 to 15 years, with the line between public and private credit becoming increasingly blurred.

With the global direct lending industry’s growth set to continue, we increase our default loss assumption relative to last year from 2.0% to 2.5%. Importantly, we also consider a scenario in which dry powder continues to accumulate in private credit, alongside any additional flows from a further “democratization” of the asset class. If these dual inflows continue, some managers may struggle to put that money to work in a sound way unless PE dealmaking rises, thereby contributing to our assumption of rising defaults (Exhibit 8).

Declining rates may provide a modest headwind for hedge funds as the benefit of the “short rebate” – specifically, the portion of the interest earned on the cash collateral from a short sale – fades. The recent higher rate environment has also supported higher return dispersion, which has in turn benefited certain hedge fund returns. While many of the tailwinds that hedge funds have enjoyed from higher rates may not completely disappear, a decline in rates over our forecast horizon may weigh on certain types of hedge fund strategies at the margin, particularly in the long-short space.

Lower rates have a silver lining, too

Investors, becoming more cautious, have focused on real estate with strong cash flow and long-term lease agreements to hedge against interest rate volatility. Consequently, we have seen a noticeable shift across the globe toward investing in industrial and logistics sectors, which are perceived to be more resilient to interest rate changes due to strong – and increasingly diverse – demand drivers, such as rising tariffs sparking interest in warehouses and manufacturing facilities. In some markets, yields repriced in advance of the other sectors, and declining U.S. rates over our forecast horizon, should allow for broadening deal activity across most sectors, including multi-family housing (Exhibit 9).

Unique dynamics make U.S. multi-family housing a key area of opportunity over our investment horizon. During the early 2020s, ultra-low interest rates led to a sharp appreciation in residential property prices, leaving homeownership out of reach for many individuals. This dynamic – coupled with increasing urbanization, demographic shifts and changing lifestyle preferences – has led to a surge in rental demand, reinforcing the attractiveness of multi-family assets globally.

Cycles vary across real assets

Over the past few years, market participants have sought to understand why global commercial real estate valuations took such a hit as interest rates rose in the aftermath of the pandemic, while other real assets, namely infrastructure and transportation, saw less of a valuation impact. In our view, infrastructure assets did not reprice as heavily as real estate due to the essential nature of the assets, robust pricing power and the market’s increasing institutionalization and associated capital growth.

The speed of that institutionalization is reflected in the market’s dramatic expansion over the past 15 years. From 2009–24, global infrastructure delivered annualized capital growth of 4.9%, meaningfully outpacing real estate. Furthermore, as bond yields have risen in the aftermath of the pandemic, investors have appeared more willing to accept a lower risk premium due to the increasingly institutional nature of the asset class. Putting it all together, we increase our long-term core infrastructure return assumption to 6.5% from 6.3% last year, but recognize that the strong returns seen in the past decade have been impacted by the increasingly institutional nature of the asset class.

Private equity: Poised to prosper?

The higher interest rate environment post-pandemic also put pressure on global private equity buyout activity as the cost of financing increased, leaving only the highest quality assets changing hands. This has kept aggregate valuations elevated, which may well weigh on future returns. Against this backdrop, firms have increasingly focused on investing in businesses tied to the technology sector and AI while simultaneously embracing investment strategies beyond buyouts, such as acquiring “add-ons” to enhance their core business platforms. This bundling of businesses is something that we believe will persist over the forecast horizon.

At the same time, private equity and credit investors have brought to market an assortment of new funds and structures aimed at retirement portfolios and other investment vehicles. The PE secondary market has also seen increased transaction activity as some investors have sought liquidity against a backdrop of depressed deal flow.

As rates begin to ease over our forecast horizon, private equity firms should see transaction volumes improve, allowing for better price discovery and deal activity (Exhibit 10). We also believe that PE returns will enjoy a tailwind from leverage as lending markets become more competitive and the cost of financing falls.

Declining interest rates in certain markets may provide some relief in other markets, such as timber and housing. In timber, asset appraisals were, until recently, starting to flatten as higher rates weighed on fundamentals. Higher rates were also hurting housing affordability, as previously noted. However, as the financing burden begins to ease with falling rates, affordability should gradually improve and additional housing supply will start to come online.

Alternative markets – namely, carbon credits – are creating new, less rate-sensitive revenue streams within timberland as an asset class, giving landowners the option of letting their trees grow for longer and providing support for future returns. All these trends come together to lift our global timberland return projection to 6.3%, a notable upgrade from 5.3% last year.

Even as global trade frictions increase, exacerbating market inefficiencies, AI appears poised to become a transformative force across all asset classes.

In private equity, the focus on technology and AI investments is driving significant efficiencies and innovation, particularly in sectors such as health care, finance and logistics. In real estate and infrastructure, AI-driven demand for data centers is providing support for additional investment spending. Across the financial sector more broadly, AI-powered platforms and tools are improving asset managers’ operational efficiency and reducing costs, directly impacting returns.

Successfully integrating AI and new technology into mature businesses still presents challenges, however. Changing immigration policies have weighed on the labor supply, but AI seems to be making up for the shortfall so far. That said, the impact of this shift has been uneven, and the potential for mass job displacement (or even replacement) remains as a key long-term challenge. As businesses around the world work to incorporate more technology – and specifically AI – into their day-to-day operations, we see the potential for both negative and positive effects on long-term returns.

A shifting employment landscape

While many market participants seek to invest in – and adopt – AI to help improve productivity, growth and investment returns, technological advances can be profoundly disruptive. We are already seeing an existential crisis looming for software engineers: If every instance of AI adoption were to eliminate up to three coding jobs, for example, demand for housing in tech- rich cities like Austin, Palo Alto and San Francisco might fall. Would investment spending alone prove to be a sufficient offset?

Furthermore, with AI-related companies’ high valuations, private credit managers are newly cautious. With almost a quarter of direct lending tied to the technology sector (Exhibit 11), this is something that will bear watching.

The asset-light nature of many of these businesses creates questions around recovery values; in the event of bankruptcy, nonphysical “soft” assets can be much more difficult to value than hard assets.

Investing for the AI revolution

Our global private equity return forecast is heavily influenced by our view that investment in, and adoption of, technology is a trend that will persist throughout the forecast period. In recent years, this view has also informed our macroeconomic forecasts: We have upgraded our productivity estimates for many economies around the world in response to the evolution and growth of AI. As a result, we upgrade our private equity return assumptions across market capitalizations.

The composite rises to 10.2%, from 9.9% last year. This return forecast is supported by our expectation that interest rates will decline and private equity investors will continue to expand their geographic footprint.

We see an opportunity for technology and AI as investments and also as a way to enhance returns. Private equity firms are actively seeking opportunities in AI startups developing machine learning algorithms, natural language processing and computer vision applications. These investments often target companies with scalable business models that could disrupt traditional industries, such as AI-driven fintech solutions or autonomous vehicle technologies. A private equity firm might acquire a mature AI company, for example, to expand its product offerings, boost its technological capabilities and enter new geographic markets. This process can involve restructuring the company to improve both efficiency and profitability.

Given muted deal activity and the broader interest rate environment, PE firms have gravitated recently to doing more “add-ons,” investing in smaller AI businesses to complement and enhance the capabilities of their existing portfolio companies (Exhibit 12). Portfolio companies can then integrate new technologies, expand their product lines and improve their competitive positioning.

Operationally, private equity investors can leverage AI and automation to help drive productivity and expand profit margins. In health care, for example, PE funds may invest in AI-driven startups that offer predictive analytics for patient care and diagnostics.

These applications aim to improve outcomes and reduce costs. In finance, investments might target AI companies developing advanced algorithms for risk assessment, fraud detection and automated trading (Exhibit 13). This just scratches the surface, however, supporting our latest upgrade to productivity growth.²

Early adopters: Hedge funds seek an AI edge

As a group, hedge funds have been early adopters of technology and AI, with many leveraging this technology as part of their investment process. Some are now investing in companies that are exposed to the general AI theme; others are using AI in the context of machine learning to drive alpha generation and enhance portfolio management capabilities.

Although the barrier to entry is high, we expect machine learning will only become more prevalent in the hedge fund industry – and across the financial industry more broadly. This trend supports our belief that investment in AI and technology will continue to grow as asset managers back the necessary data and infrastructure to ensure a sufficient return on investment. However, alpha is not infinite, and this seems likely to evolve into a world of AI- empowered haves and have-nots.

With AI adoption, infrastructure demand rises

Adoption of this technology cannot occur without sufficient power and data processing, putting real estate and infrastructure investment at the heart of the conversation. Here, the U.S. is leading the charge, as investors in both asset classes are seeing significant demand for data centers – AI is, of course, the root cause (Exhibit 14). With increasing adoption of the technology, demand for power and data centers will further accelerate, potentially creating a virtuous cycle of investment spending. But there are clear leasing and operational risks that come with investing in this area.

Perhaps one of the most unexpected outcomes of the AI adoption wave is that, like private equity firms, global real estate and infrastructure investors are increasingly using AI within their investing processes. AI algorithms can assist with real estate valuation and forecasting, and machine learning models can analyze market data to identify emerging trends and opportunities. Operationally, AI-powered platforms can automate real estate management tasks, reducing costs and improving efficiency; the technology can even be used to optimize pricing. All these uses support future return potential.

The speed of AI and technology adoption is inevitably having a direct impact on the demand for commodities, primarily via the data center channel. Against this backdrop, we expect to see an increase in demand for steel and copper, as well as commodities related to power generation. Furthermore, the continued electrification of the power, transportation and industrial sectors should have a positive impact on commodity prices beyond precious metals.

Related to this is our expectation of rising demand for natural gas, with most of this additional pressure coming from the power sector. Alongside growth in the market for power, we expect an upturn in grid infrastructure to support additional electricity loads, which will likely impact demand for conductive metals such as copper. We also expect to see the rapid adoption of electric vehicles and the coming build-out of renewable energy sources to drive increased industrial use of metals over the next 10 to 15 years.

Conclusion: As change prevails, new opportunities shine

The interplay of economic nationalism, fiscal activism and technological advancements, particularly in AI, shapes our long-term outlook for returns across private markets and alternative assets (Exhibit 15). While challenges remain, particularly in terms of policy uncertainty and interest rate volatility, the opportunities presented by technology and AI adoption – coupled with rising investment spending by both public and private actors – offer a promising outlook for private market returns over our 10- to 15-year investment horizon.

¹ All returns cited throughout the paper are in U.S. dollars.

² We modestly raise our U.S. projection for total factor productivity (TFP) by 10bps, to 1.0%, after holding it steady in the last edition. This reflects a growing confidence that AI and other advanced technologies will translate into measurable productivity gains, particularly in sectors such as technology, financial services and health care. For more on U.S. growth projections, see Dr. David Kelly, Karen Ward, Stephanie Aliaga and Natasha May, “Macroeconomic Assumptions: Shifting gears to slower expansion, stickier inflation,” 2025 Long-Term Capital Market Assumptions, J.P. Morgan Asset Management.