How to diversify with alternatives

21 August 2026, 11:24 UTC Chief Investment Office GWM Investment Research

How to diversify with alternatives? UBS House View Briefcase Karim Cherif, Head Alternative Investments, UBS Switzerland AG; Richard Huang, CAIA, Private Market Strategist, UBS AG Hong Kong Branch; Tony Petrov, Alternative Investments Strategist, UBS Switzerland AG; Antoinette Zuidweg, Alternative Investments Strategist, UBS Switzerland AG; Matthew Carter, Strategist, UBS AG London Branch; Jon Gordon, Strategist, UBS AG Hong Kong Branch

Key message New this week We believe alternative investments have a role to play in long-term A 20 August report from Money Marketing, portfolios as both a source of differentiated returns and as potential citing a survey of 100 UK private market fund portfolio diversifiers. But geopolitical uncertainty and pockets of managers by Wealth Club, found that just over credit market stress warrant a review of positioning, including six in 10 respondents forecast sharp rises in the liquidity, tolerance, and a bias toward diversification and selectivity number of evergreen funds available to retail across strategies, sectors, and regions. and high-net-worth investors over the next three years.

01 Hedge funds can be a fresh return source and portfolio stabilizer. One liner • We continue to favor discretionary managers given their flexibility Including an allocation to alternatives can to adapt positioning around policy and geopolitical shifts. improve diversification, growth potential, and insulate against market declines through the • We also see ongoing opportunities for equity market neutral and market cycle. multi-strategy funds, which can generate returns in both rising and falling markets as they flexibly position around economic developments. Equity hedge was the top first-half strategy, Did you know? returning +9.5% based on HFRI data, supported by elevated stock dispersion and greater opportunities for security selection. • Secular trends—including global population growth, AI proliferation, supply chain • Managers have shown early signs of positioning for a broadening realignment, the drive for energy security, of market leadership, though leverage has recovered and and the push for net-zero carbon emissions— concentration risks remain elevated. We continue to favor are expected to drive over USD 100 trillion in disciplined, lower net, and market-neutral managers actively cumulative infrastructure spending by 2040 managing concentration and factor rotation risks. across the transportation, energy, digital, and social sectors (according to McKinsey).

02 Private markets still offer opportunities for diversification, return generation, and income. • Following a disciplined process around timing, liquidity management, and risk controls may • In private equity, we view managers with a value bias who are help balance capturing opportunities and active in the middle market or skilled at executing complex limiting portfolio losses. transactions as best positioned. Meanwhile, the appeal of the secondary market remains intact, offering investors greater returns visibility and more defensive exposure to private equity. Investment view • We believe infrastructure assets are well positioned to deliver Incorporating alternatives into a diversified resilient, inflation-linked returns through market cycles. Their portfolio may enhance returns, reduce volatility, income streams may be more robust than other yielding assets to and generate income through the market cycle. both economic volatility and inflation. Alternatives such as hedge funds and private markets can provide unique return streams

03 We see numerous paths to invest in alternatives, subject to careful risk management. that complement traditional assets. However, investors should be willing and able to bear the • Investors can blend liquid and less liquid strategies, using hedge unique risks of alternative investments, including funds for diversification and private markets for long-term returns. illiquidity, strategy complexity, and potential lockup periods on invested capital.

This report has been prepared by UBS Switzerland AG and UBS AG Hong Kong Branch and UBS AG London…