Key trends in alternative investments for 2025 you need to know

As 2025 unfolds, policy shifts, market trends, and AI-driven strategies are reshaping alternative investments. Ahead of SuperReturn North America, David Tatkow, Albourne, breaks down the key developments investors need to watch.

There are number of trends and opportunities that are shaping the alternative investment landscape in 2025, and while this list is not fully exhaustive, here are a few items that we are watching:

• The new administration in the US is likely to create alpha opportunities in hedge funds, and both opportunities and risks in private markets. Alpha opportunities in equities, FX, and credit markets may develop in response to deregulation and anticipated significant changes in policy and market conditions over the next 18-24 months, however the potential paths forward and distribution of outcomes for Europe and Asia are wide.
• Broader emerging markets ("EM") volatility is expected, with some clear country winners and losers driven by tariff expectations that will also impact EM currencies.
• All hedge funds strategy indices were positive on average in 2024, with outperformers frequently those who were able to capture the upside of AI-growth themed equities. Certain systematic macro strategies struggled at times in 2024 due in part to a lack of clear trends in interest rate expectations, however improved alpha opportunities are expected in 2025.
• The higher interest rate environment may be here to stay. This has both positive and negative return implications for hedge funds depending on the specific strategy.
• Higher interest rates have also prompted many allocators to seek cash fee hurdles with their GPs. The Open Letter to the Hedge Fund Industry[1], promoting the use of cash hurdles, was signed in 2024 by over 50 prominent allocators and six institutional consultants.
• Generative AI is being used across functions at managers with investment process, software development / IT, and business development being the most common use cases. From Albourne's survey of managers[2], 29% expect the use of AI to have no impact on hiring, while 58% say that it is too early to know what impacts these tools will have on hiring.
• Private Markets are looking forward to an increase in animal spirits, driving M&A. The possibility of reduced anti-trust enforcement and lower taxes provide a possible upside, while tariffs, increased labor costs, and higher inflation and interest rates provide a possible downside.
• Despite the new administration's emphasis on promoting fossil fuel, general energy transition opportunities remain strong, though certain themes such as wind energy may become challenged.
• Increasing geopolitical tensions are expected to have continued ramifications for countries trying to secure their future energy needs, creating investable opportunities across Oil & Gas, Mining Finance, Digital Decarbonization / Power, and Renewable specialists.
• In a world without the Private Fund Advisor Rule, operational due diligence ("ODD") takes on even more importance, as managers can become complacent. Though regulations may become less stringent, risks around cybersecurity, fees / expenses, and AI misuse persist, and may increase.
• Allocators remain keen on look-through transparency for both their liquid and private investments. Open Protocol remains a market standard for exposure data across alternatives, and hedge fund managers with over $3 trillion in assets are now reporting in the format. The adoption of the Institutional Limited Partners Association ("ILPA") template for the consistent reporting of private markets holdings continues to grow, and increasingly private markets funds are reporting in Open Protocol as well.
• The ongoing trend of making private markets investments more accessible to retail investors is likely to be further accelerated by the new US administration. While retail investors may gain an additional source of portfolio diversification, there is the potential for a reduction in alpha due to increased liquidity. Private markets managers may lack best practices regarding fund governance, operational setups, and the alignment of interests, fees & expense of open ended structures.
  
  [1] Open Letter on Cash Hurdles | News | Albourne
  [2] https://village.albourne.com/castle/doc/1982118