Key takeaways
U.S. tax reform and deregulation could enhance corporate profitability, reviving deals, exits and lending
Many alternatives may benefit from tariff-related disruptions or can provide inflation protection to investors
2025 could be a year of divergent monetary policy, although higher terminal interest rates appear likely in many regions
Overview
The current landscape is marked by political crosscurrents, with a new U.S. administration and political uncertainty rippling across the globe. The resulting policy changes could underscore U.S. exceptionalism in global growth, boost global inflation and spark divergent monetary policy. In this dynamic environment, we explore three key themes that could shape portfolio strategies for alternative assets.
The strategic importance of alternative investments is clearer than ever. With public equity markets richly valued and highly concentrated, interest rates volatile and stock-bond correlations positive, alternatives are essential for providing alpha, income, inflation protection and diversification.
Broad themes
Looking ahead into 2025, we expect to see both enhanced opportunities and emerging risks for alternative investments driven by three broad themes.
Impacted asset classes: Private equity, Private credit, U.S. real estate
Pro-growth policies could spur dealmaking and exits
Source: PitchBook, J.P. Morgan Asset Management. Natural resources = Materials & resources and energy. *Data for 2024 is through 3Q24. Data based on availability as of November 30, 2024.
Impacted asset classes: Infrastructure, Real estate, Transport
Utilities and real estate can provide protection against inflation by passing on costs
Source: Bloomberg, Bureau of Economic Analysis, Bureau of Labor Statistics, NCREIF, SNL, AEU, J.I. Morgan Asset Management. (Left) Data represent average allowed return on equities (RoEs) for Electricity and Natural Gas Utilities and annual inflation from December 1970 through December 2023. Return on equity is lagged by 2 years. (Right) NFI-ODCE is short for NCREIF Fund Index Open End Diversified Core Equity Fund Index. It is a capitalization weighted, gross of fee, time weighted return index. Real estate performance is measured using total returns. “High inflation is defined as any year over year headline CPI reading above the historical median, while low inflation is defined as any year over year headline CPI reading below the historical median. The median y/y headline CPI for period between 4Q78-3Q24 is 2.84%. Data are based on availability as of November 30, 2024.
Impacted asset classes: Private equity, Private credit, Commercial real estate, Hedge funds, Residential real estate
Currency and interest rate volatility may provide macro hedge funds with opportunities for alpha generation
Source: CBOE, ICE BofA, HFRI, FactSet, J.I. Morgan Index Research, J.I. Morgan Asset Management. Equity volatility is represented by the VIX Index, interest rate volatility is represented by the MOVE Index and foreign exchange volatility is represented by the J.I. Morgan Global FX Volatility Index. Three month Treasury Bill yield: Bloomberg U.S. Short Treasury (one to three months) Index. Hedge fund returns: HRFI Fund Weighted Composite (USD) Index. Data based on availability as of November 30, 2024.
Investment implications
The Alternatives Investment Strategy & Solutions (AISS) team shares its three high-conviction, near-term opportunities in income-oriented or semi-liquid alternatives.
*While our conviction is positive for many categories of alternatives, in any environment, it's important to focus on the fundamentals and an outcome-driven investment approach in order to position portfolios for success.
Source: J.P. Morgan Asset Management. As of 4Q 2024.
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This year’s Alternatives Outlook offers broad perspectives from our team of experts, bringing you a comprehensive view of the trends, risks and opportunities influencing alternative investment markets.
