Key Takeaways
Infrastructure demand driven by AI expansion and its power requirements supports private infrastructure Morgan Stanley Wealth Management’s Global Investment Manager Analysis team believes can guide investors’ thinking on alternatives in the near to intermediate term.
1
Seeking growth in infrastructure
Demand for new and expanded digital infrastructure is surging as rapid AI growth and data proliferation increase the need for robust power generation and distribution. Global power demand from data centers alone is projected to triple by 2030, requiring substantial new investment. As companies relocate production closer to consumers to mitigate geopolitical risk, the push to strengthen energy infrastructure in domestic and regional markets is likely to accelerate.
Private infrastructure investing offers stable cash flows and can diversify a portfolio, since its performance often moves independently of public markets.
2
Looking for liquidity in private secondaries
Although IPOs and M&A activity have picked up, many private‑equity‑backed companies still lack clear exit paths to return capital to investors. Consequently, the secondary market for buying and selling such assets continues to expand, allowing limited partners to obtain cash when needed and general partners to retain prized assets longer.
GP‑led transactions have risen sharply and now represent about 19% of all private‑equity exits. Activity is especially strong in single‑asset “continuation vehicles,” which let GPs extend holding periods and bring in new investors. Venture secondaries are also thriving, offering discounted exposure to high‑growth AI and tech firms.
Investors should target fund managers skilled in both traditional LP‑led sales and complex GP‑led restructurings to capture the full range of opportunities.
3
Searching for stability in asset‑based finance and triple‑net lease
Asset‑based finance (ABF) involves lending secured by assets such as infrastructure, real‑estate debt, or property. For investors, ABF provides stable cash flows and diversification because of the varied collateral that can back investments.
In addition, “triple‑net lease” funds may be attractive. These funds own properties with long leases—often ten years or more—where tenants cover taxes, insurance and maintenance. This structure can deliver predictable income, potential for higher returns over time, inflation protection and tax advantages. Declines in real‑estate prices since 2022 may also create appealing entry points.
4
Capitalizing on opportunistic credit
After a period of higher‑for‑longer rates and tighter credit, many companies face heavy debt loads, weaker cash flows and sizable refinancing needs.
This environment creates openings for “special situations” and “opportunistic credit” lenders to provide bespoke financing when traditional banks and public markets are less flexible.
A key driver is the large amount of corporate debt maturing soon: roughly $1.8 trillion of leveraged loans and high‑yield bonds are due by 2028. Private lenders can craft customized solutions for borrowers seeking extensions, restructurings or rescue capital.
For investors, these deals may yield higher income, stronger lender protections and, in some cases, equity‑like upside. They are typically backed by contractual safeguards designed to limit losses.
Although the broader private‑credit sector has felt pressure after rapid growth, these challenges are viewed as contained rather than systemic. The strain mainly stems from redemption requests and concerns about exposure to software borrowers, underscoring the importance of careful manager selection.
5
Pursuing alpha with hedge‑fund strategies
Today’s equity market shows wider gaps between winners and losers, creating a favorable backdrop for active stock picking. Unlike the post‑crisis years when ultra‑low rates pushed many stocks to move together, company‑specific fundamentals now drive individual performance. “Relative value” and “equity long/short” strategies aim to profit from these differences by holding stocks expected to outperform and shorting those likely to lag.
Because returns depend more on stock selection—and can be enhanced by leverage and disciplined risk management—these strategies may be less tied to overall market direction, helping diversify portfolios. Specialist managers focused on sectors such as technology and healthcare may be especially well‑positioned where performance dispersion remains high.
6
Finding value in select private‑equity buyouts
With deal‑making expected to rebound over the next few years, select private‑equity (PE) buyout funds could become attractive. These funds pool capital to acquire controlling stakes in established companies, often using debt, then work to improve operations and sell later for a profit.
Going forward, the primary drivers of returns for these funds will likely be real operational improvements in portfolio companies rather than higher market multiples.
Experienced PE buyout managers can boost performance by deploying “value‑creation” teams that enhance processes, talent management and technology—often leveraging AI—to raise productivity.
Qualified investors should seek funds run by managers with a proven record of operational upgrades. A key differentiator is how effectively these managers use AI to support better decisions, accelerate execution and cut costs.
i
Alternative investments are becoming more accessible, with a variety of registered funds and evergreen vehicles offering exposure to private equity, private credit and private real estate.
Looking ahead: Greater access, liquidity and simplicity
Alternative investments are increasingly flexible, with registered funds and evergreen vehicles giving investors exposure to private equity, private credit, private real estate and infrastructure. These products typically feature lower eligibility thresholds, improved liquidity, modest minimums and streamlined tax reporting. Curated portfolio solutions have also emerged, making participation even easier.
Nevertheless, alternative strategies differ from one another and are not suitable for every investor. Each investor must assess the return, risk, income and liquidity characteristics of any investment under consideration.
Liquidity terms vary across alternative products, and some funds may impose redemption limits to preserve portfolio stability and manage liquidity, especially during market stress.
To explore how alternative investments might fit into your portfolio, contact your Morgan Stanley Financial Advisor or Private Wealth Advisor.
Questions you can ask your Morgan Stanley Advisor:
How can alternative investments enhance return potential while managing risk in today’s market environment?
Which alternative strategies align best with my investment portfolio and financial goals?
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Insights to help you go further.
Alternative Investments – Wealth Management Portfolio Insights
Footnotes:
1 McKinsey & Company: The Infrastructure Moment, September 2025.
2 Jefferies: 1H 2025 Global Secondary Market Review.
3 Morgan Stanley Wealth Management Global Investment Manager Analysis, Federal Reserve Bank of St. Louis, January 2025.
Disclosures:
Hedged Strategy Definitions
Equity Long/Short consists of a core long equity position hedged at all times with varying degrees of short sales of stock and/or index options. Some managers keep a substantial portion of assets within a hedge structure and often employ leverage.
Equity Market Neutral strategies use sophisticated quantitative techniques to analyze price data, identify future price movements and relationships between securities, and select securities for purchase and sale. These may include factor‑based and statistical arbitrage/trading approaches. Factor‑based strategies rely on systematic analysis of common relationships between securities. Portfolios are often constructed to be neutral to one or more variables, such as broader equity markets in dollar or beta terms, and leverage is frequently used to boost returns. Statistical arbitrage strategies exploit pricing anomalies that may revert to the mean; high‑frequency techniques or technical analysis may be employed. Equity market neutral portfolios typically maintain net equity market exposure of no more than 10% long or short.
Relative Value managers hold positions based on valuation discrepancies between multiple securities. They employ a range of fundamental and quantitative methods, and the securities involved can span equities, fixed income, derivatives or other asset types.
The Global Investment Manager Analysis (GIMA) Services apply only to certain investment advisory programs. GIMA evaluates specific products for some—but not all—Morgan Stanley Smith Barney LLC advisory programs (see the applicable Form ADV Disclosure Document for details). If you do not invest through one of these programs, Morgan Stanley Wealth Management is not required to notify you of GIMA status changes, though it may do so for other clients.
Risk Considerations
Alternative/hedged strategies may use a variety of techniques for hedging and speculative purposes, such as short selling, leverage, derivatives and options, which can increase volatility and the risk of loss. These strategies are not suitable for all investors. Short‑sale strategies carry the risk of loss if the borrowed securities rise in value; losses on short positions can be unlimited. Leverage can amplify the impact of adverse issuer, political, regulatory, market or economic developments. In a liquidation or bankruptcy, creditors are paid before shareholders.
General Alternative Investments Risk – Alternative investments are often speculative and carry a high degree of risk. Investors could lose all or a substantial portion of their capital. They are appropriate only for eligible, long‑term investors willing to forgo liquidity and accept indefinite risk exposure. Such investments may be highly illiquid, employ leverage and other speculative practices that increase volatility and loss potential. Fees are typically higher than those of traditional investments. Investors should carefully review potential risks, which may include:
• loss of all or a substantial portion of the investment due to leveraging, short‑selling or other speculative practices;
• illiquidity, with no secondary market and no expectation of one developing;
• restrictions on transferring interests;
• potential lack of diversification and higher risk from concentration when a single advisor is used;
• limited information on valuations and pricing;
• complex or tax‑inefficient structures and delayed tax reporting;
• less regulation and higher fees than mutual funds;
• additional fee layers in funds of funds;
• operational, personnel or process risks at the advisory firm;
• overall higher fees and expenses that can erode returns;
• specific risks unique to each fund’s investment program.
Specific risks of private credit include:
• Illiquidity – capital may be committed for several years;
• Credit/default risk – possible non‑payment of interest or principal;
• Interest‑rate risk – changes in market rates affect loan spreads and portfolio value;
• Prepayment risk – high‑rate loans may be paid off early if cheaper financing becomes available;
• Credit‑rating analysis risk – many borrowers lack rated debt, so creditworthiness depends on manager analysis.
All opinions are subject to change without notice and do not constitute a forecast of future events or results. Opinions expressed may differ from those of Morgan Stanley Wealth Management or its affiliates.
Alternative investments involve complex tax structures, may be tax‑inefficient, and can delay the distribution of important tax information. Individual funds have specific risks that vary from fund to fund. Clients should consult their own tax and legal advisors; Morgan Stanley Wealth Management does not provide tax or legal advice and is not a fiduciary with respect to the services described herein, except as expressly provided in writing.
Interests in alternative investment products are offered pursuant to the terms of the applicable offering memorandum, are distributed by Morgan Stanley Smith Barney LLC and its affiliates, and (1) are not FDIC‑insured, (2) are not deposits or other obligations of Morgan Stanley or its affiliates, (3) are not guaranteed by Morgan Stanley and its affiliates, and (4) involve investment risks, including possible loss of principal. Morgan Stanley Smith Barney LLC is a registered broker‑dealer, not a bank.
Private‑equity interests may be highly illiquid, carry significant risk and be subject to transfer restrictions.
Real‑estate investments can suffer value declines due to environmental, economic or other factors, and interest‑rate changes can negatively affect real‑estate company performance.
Hedge funds may involve high risk, often use leverage and other speculative practices that can increase loss potential, may be illiquid, are not required to provide regular pricing or valuation information, may have complex tax structures, are less regulated than mutual funds, often charge high fees that can offset trading profits, and their underlying holdings are typically known only to the manager.
Investing in stocks entails market‑volatility risk. All investment values can rise or fall over varying time periods.
Bonds face interest‑rate risk; when rates rise, bond prices fall, with longer‑maturity bonds being more sensitive. Bonds may also carry call risk, allowing issuers to redeem debt before maturity, potentially affecting proceeds.
High‑yield bonds carry additional risks such as higher default probability and greater volatility due to lower credit quality.
Yields change with economic conditions; yield is only one factor to consider when making an investment decision.
Asset allocation and diversification do not guarantee profit or protect against loss in declining markets.
Sector‑focused investments tend to be more volatile than diversified portfolios.
Artificial intelligence (AI) has limitations; any output from an AI‑supported tool provided by the Firm may be inaccurate, incomplete or biased. Users should verify AI‑generated results.
Environmental, Social and Governance (ESG) investments may perform better or worse than non‑ESG portfolios. ESG‑focused portfolios may miss opportunities available to non‑ESG portfolios. ESG definitions and ratings vary across providers, and issuers may present inconsistent ESG claims. ESG designations reflect the status at the time of this material and are not guaranteed to remain. Investors should independently assess whether an ESG product meets their objectives. ESG strategies are not guaranteed to succeed; past performance does not ensure future results.
