Alternative Investment Outlook: Opportunities for 2025 and Beyond
“Economists say the inability to delay gratification is a primary predictor of economic failure in life.”
– Brian Tracy
Introduction
The global investment landscape in 2025 sits at the crossroads of opportunity and transformation. After years of tightening monetary policy, central banks across major economies are starting to ease, with rate cuts potentially unlocking more favorable financing conditions. Inflation, though moderated, remains a factor in shaping allocation strategies, while geopolitical tensions and structural shifts, such as energy transitions and digitalization, redefine global markets. Investors are increasingly seeking opportunities in alternative investments, which can offer diversification, resilience, and growth potential.
This outlook delves into five key themes poised to define 2025: AI and Automation, Infrastructure, Hedge Funds and Global Macro Strategies, GP Stakes and the Growth of Alternative Investments, and Real Estate. These themes highlight the dynamic interplay of technology, sustainability, and macroeconomic forces that underpin the evolving investment environment.
Theme #1: Transformative Power of AI Across All Industries
Artificial intelligence (AI) has emerged as a central driver of innovation, reshaping industries and creating unprecedented opportunities. By 2027, the global AI market is projected to exceed $1 trillion, growing at a compound annual growth rate (CAGR) of 38%. Key areas driving this growth include generative AI, machine learning (ML), robotics, and automation.
Generative AI: Applications such as ChatGPT and DALL-E are revolutionizing content creation, customer engagement, and drug discovery. Industries like healthcare and legal services are increasingly adopting these technologies to improve efficiency and reduce costs.
Industrial Automation: AI-powered robotics are transforming manufacturing and logistics by streamlining supply chains and optimizing production.
AI in Cybersecurity: Advanced AI-driven threat detection systems are critical in combating rising cyber threats, creating a high-demand niche within the technology sector.
Downstream Impacts and Energy Needs
The growth of AI places substantial demand on energy infrastructure, particularly data centers, which account for approximately 1% of global electricity consumption. This figure is expected to rise as AI adoption accelerates.
Theme #2: Infrastructure: A Cornerstone for 2025 Investment Strategies
Infrastructure continues to emerge as a pivotal asset class in 2025, driven by its defensive qualities, inflation resistance, and adaptability to evolving global needs. From decarbonization to digital transformation, the sector offers a diverse set of opportunities for investors seeking long-term stability and growth. As interest rates begin to stabilize and gradually decline in 2025, infrastructure investments are uniquely positioned to benefit from the renewed search for yield. The recalibration of asset valuations across markets has created favorable entry points, offering investors the potential to capitalize on early-cycle opportunities.
Attractive Risk-Adjusted Returns: Infrastructure assets have historically provided yields at a premium to the risk-free rate, retaining their defensive and inflation-resistant qualities. This positions infrastructure as an appealing option for investors wary of downside risk but needing sustained returns.
Valuation-Earnings Delta: Since 2022, infrastructure valuations have dropped while earnings growth has proven resilient. According to ClearBridge Investments, this divergence presents an opportunity for early movers to secure attractive entry multiples, particularly as valuations realign with long-term growth patterns.
Key Investment Areas
Renewable Energy: Solar, wind, and hydrogen projects are expanding rapidly to meet decarbonization goals.
Digital Infrastructure: Data centers, fiber-optic networks, and 5G connectivity are critical to supporting AI and automation.
Transportation Systems: Modernized railways, ports, and urban transit systems align with global trade and urbanization trends.
The twin mega-trends of decarbonization and digitalization dominate the infrastructure sector in 2025, opening vast opportunities for investment in renewable energy and data centers.
Decarbonization Imperatives: Regulatory mandates to achieve net-zero emissions by 2050 have made decarbonization a compliance and strategic necessity across industries. S&P Global estimates that achieving Paris Agreement goals will require approximately $5 trillion in annual energy transition investments through 2050, a figure three times current spending levels. Even if these mandates are not met due to political winds shifting or regulatory environments changing, this ongoing momentum has strength.
Green Transition: Renewable energy infrastructure, such as wind, solar, and hydrogen projects, is already commanding the largest share of fundraising activity. In 2024, renewable energy accounted for 69% of primary infrastructure deals, per Preqin’s Global Outlook report.
Resilience Amid Costs: While the costs of decarbonization may pose political and consumer challenges, its long-term benefits—improving energy security, reducing costs, and addressing climate change risks—provide the momentum needed to sustain investment.
Digital Transformation: The rise of artificial intelligence (AI) and the growing demand for data are fueling unprecedented investment in data centers. Partners Group forecasts a CAGR of 42% for the AI sector, with the market projected to reach $1.3 trillion by 2032.
Data Centers: With surging data requirements, data center infrastructure is expected to see robust deal activity in 2025. The integration of automation, robotics, and energy-efficient systems will further enhance the attractiveness of these assets.
Established categories such as utilities, transportation, and ports are poised for a resurgence, supported by economic recovery and increasing consumer demand.
Utility Growth to Support Data Centers: McKinsey projects that power generation capacity must more than double by 2030 to meet the needs of electricity-intensive data centers. Grid connection capacity will also need significant scaling, presenting investment opportunities in core utilities.
Transportation Infrastructure:
Airports: The International Air Transport Association forecasts global air passenger numbers to exceed 5 billion in 2025, reflecting a recovery in travel activity.
Ports: Maersk predicts a 7% increase in global container volumes for 2025, driven by rising trade and logistics demand.
Toll Roads: Growing populations in urban centers are driving increased toll road traffic, with usage now exceeding pre-pandemic levels in many regions.
Diversification Across Verticals: Established infrastructure categories continue to offer reliable cash flows and resilience against economic fluctuations. These assets remain critical for investors balancing traditional income generation with exposure to emerging verticals.
Opportunities and Strategic Positioning for 2025
The infrastructure sector in 2025 presents a blend of stability and innovation, offering investors the chance to align with both enduring and transformative trends. Key strategies include:
Early Entry Advantage: Leveraging the current valuation-earnings delta to secure infrastructure assets at attractive multiples.
Focus on Sustainability: Investing in renewable energy projects to benefit from regulatory support and global decarbonization efforts.
Embracing Digital Growth: Prioritizing data center investments to capitalize on the AI-driven demand for computing power.
Balancing Old and New: Diversifying portfolios with both traditional infrastructure categories and emerging sub-sectors to achieve optimal returns and risk mitigation. Outlook for Infrastructure
Opportunities in the next 12 months (GP Survey, -5; extremely unfavorable and +5; extremely favorable)
Listed Infrastructure 2023-26E EBITDA CAGR by industry
As global economies transition into a new phase of growth, infrastructure remains a cornerstone of investment strategy. By aligning with these trends, investors can unlock significant value and position themselves for long-term success in the years ahead. Whilst investing in infrastructure, it is important to identify that while megatrends such as data center growth and electricity demand is growing, it is important to understand the nuances of valuation and that all investments should stand on its own two feet and tied to reasonable fundamental forecasts.
Thematic #3: 2025 – Year of the Hedge Fund
Navigating Complexity
Hedge funds have long been recognized for their ability to adapt and thrive in volatile and complex markets. In 2025, these strategies are poised for growth, bolstered by macroeconomic shifts, geopolitical instability, and increasing market dispersion. Hedge funds excel at generating uncorrelated returns, offering diversification and downside protection for multi-asset portfolios.
Key Trends Driving Hedge Fund Growth
Macro Volatility: Fluctuations in interest rates, inflation, and currency valuations create fertile ground for global macro strategies. Central bank policies diverging across regions amplify opportunities for macro traders.
Security Dispersion: Valuation gaps across sectors and geographies provide fertile ground for alpha generation in equity long-short and relative value strategies.
Higher Interest Rates: Elevated rates enhance returns on cash reserves and fixed-income strategies, while increasing volatility creates new trading opportunities.
AI and Hedge Funds
Artificial intelligence is revolutionizing hedge fund operations. Advanced machine learning models enable funds to:
Analyze macroeconomic indicators and predict market movements with greater precision
Enhance risk management frameworks, reducing exposure during adverse market conditions.
Identify trading opportunities in real-time through advanced data analytics.
According to Morgan Stanley’s research, after experiencing a challenging alpha environment between 2012 and 2022, the average alpha produced by multi-PM hedge fund platforms in the most recent one-year period, for example, has significantly outperformed the average long-only public equity strategy. Hedge funds have tended to perform best in periods of higher security-level dispersion, macro volatility, and interest rates. We believe we have entered a market environment conducive to hedge fund success.
What does this new market regime mean for investors? With the assumption of 2025 and beyond entering this new market regime, we believe the relatively stable environment of the 2010s has given way to a new economic regime marked by three defining characteristics:
Structurally higher inflation—fueled by tight labor markets, increased fiscal spending, underinvestment in commodity production, and deglobalization.
A delicate monetary policy balancing act—as central banks strive to curb inflation while still supporting economic growth, leading to heightened uncertainty and varied policy responses across regions.
More active government intervention—through intensified regulation and industrial policy, reflecting a broader shift toward greater state involvement in the economy.
Outlook for 2025
Assuming our thematic is accurate, supported by elevated macro volatility, increased security dispersion, and higher interest rates. Investors seeking diversification and downside protection should consider hedge funds as a core component of their portfolios. Manager expertise, strategic allocation, and active monitoring will be critical to harnessing the full potential of this asset class.
Thematic #4: The Rise of GP Stakes and the Growth of Alternative Investments
The Strategic Value of GP Stakes
What is a GP Stake?
A GP Stake involves purchasing a minority, passive interest in a Private Equity (PE), Private Credit, or Real Asset firm. This investment gives you a share in the long-term success, growth, and profitability of the asset management firm itself, rather than just its funds and the underlying assets. Over the past 35 years, private equity has consistently outperformed global stock markets, offering investors higher returns with less volatility. Between 1986 and mid-2023, U.S. Private Equity as an asset class produced average annual returns of 14.3%, compared to 9.5% for the S&P 500, delivering nearly 50% higher compounded returns. [i]
The global allocation to alternative investments, including private equity, is expected to grow from $25 trillion to$60 trillion by 2032, driven by increasing demand for these assets. [ii]
Why GP Stakes are Attractive
Consistent Revenue Streams: GP Stakes provide access to steady cash flows generated through management fees (typically ranging from 1-3% of assets under management) and performance fees (commonly 20% of the profits). These revenue streams are attractive in today’s investment environment.
Growth Potential: As the assets under management (AUM) of these firms increase, so does the value of a GP Stake, offering investors both income and capital appreciation.
Diversification: By owning stakes in multiple asset managers across various industries and geographies, GP Stakes offer extensive diversification, reducing risk and enhancing portfolio stability.
Performance Fees (Carried Interest): These fees are earned as a percentage of the profits generated by the fund (typically 20%). They provide significant upside potential when the fund performs well.
Illustrative Example: Consider a private equity firm managing a $1 billion fund. With a 2% management fee, the firm earns $20 million annually over a typical 5-year period, totaling $100 million. If the fund doubles in value, the firm also earns $200 million in performance fees, leading to a total of $300 million in gross revenue from one fund.
Operational Efficiency of Asset Managers: Asset management firms often benefit from economies of scale, achieving high profit margins (often exceeding 60%) due to low incremental costs as AUM grows. This operational efficiency leads to higher returns for GP Stake investors, who benefit from both stable income and capital appreciation.
Supporting Data: Private equity firms have shown resilience across market cycles, often outperforming public equities during downturns. For instance, during the three major market downturns of the past two decades (the Internet Bubble of 2001, the Great Recession of 2008, and the COVID Pandemic of 2020), private equity experienced less severe declines compared to the S&P 500.
EBIT Margins:
Alignment with Investors: Larger GP commitments into their funds demonstrate alignment with investors, showcasing confidence in their investment strategies.
Strategic Partnerships: GP Stake sales often bring in partners who offer more than just capital, including operational expertise, market access, and strategic advice.
The Expanding Opportunity in GP Stakes: The global allocation to alternative investments, including private equity, is projected to grow from $25 trillion to $60 trillion by 2032, driven by increasing demand for these assets. This growth highlights the expanding opportunity for investors in GP Stakes, as top asset managers continue to attract significant capital inflows. Additionally, the number of publicly traded U.S. companies has decreased by nearly half since 1996, from over 8,000 to around 4,400 today, [iii] emphasizing the increasing significance of private companies as an investment opportunity.
Allocation to Private Markets
The Case for Investing in GP Stakes: GP Stakes offer a compelling combination of stable income, growth potential, and diversification. These investments are positioned to deliver strong returns, supported by the continued success of top-tier private asset managers. In the U.S., 87% of companies with over $100 million in revenue are privately held, offering a vast opportunity set for private equity firms to invest and grow. [iv]
Thematic #5: Real Estate
A Transformative Year Ahead for US Real Estate
We believe the US real estate market is positioned for a pivotal year, underpinned by significant shifts across residential (living), industrial, and private credit segments. Early-stage opportunities in these sectors hinge on evolving demand drivers, a recalibration of construction pipelines, and new approaches to debt structuring—each posing unique risks and potential rewards. As the market transitions into a post-pandemic phase and macroeconomic uncertainties recede, understanding these factors becomes essential for effective portfolio positioning. With the right strategies, 2025 stands to be a period of robust growth, despite lingering echoes of volatility and elevated lending costs. In our view, the upcoming months will usher in a new phase of expansionary activity, powered by the convergence of several key factors:
Meaningful Repricing of Assets
Recovery in Core Values: Commercial real estate prices, which started to decline in mid-2022 before bottoming out by late 2023, have entered a mild recovery phase. An initial drop in interest rates has lent support to core assets, with multifamily sectors rebounding first, spurred by strong rental demand and a gradual return of institutional capital.
Selective Opportunities: The repricing environment favors investors ready to move up the risk spectrum, especially in segments where pricing dislocations remain. This includes secondary and tertiary markets that were slower to recover, potentially offering higher relative returns if fundamentals hold steady.
Distress Remains Constrained but Not Completely Avoided
Limited Defaults: Even though foreclosures ticked up slightly in 2024, overall distress levels remain well below historical peaks—only 15% of the post-GFC high. This suggests that distressed asset sales, while present, will likely be more situational than widespread.
Concentration in Office: The office sector continues to bear the brunt of distress, encompassing nearly half of troubled properties. Lagging return-to-office trends, coupled with heightened tenant expectations around wellness and flexible space configurations, have exacerbated challenges. By contrast, multifamily and industrial assets have shown greater resilience, benefiting from stable rent collections and consistent occupancy through year-end 2024.
Pent-Up Patient Capital
Elevated Dry Powder: Despite a cautious capital-raising environment in 2024, institutional investors still hold substantial unallocated funds. These reserves could be deployed more aggressively as clarity around interest rates and broader economic conditions emerges. The growing focus on opportunistic and value-add strategies—nearly two-thirds of the CRE dry powder—signals a willingness to engage in both stabilization and repositioning plays.
ESG and Sustainability Considerations: A portion of this patient capital is earmarked for projects that meet environmental, social, and governance (ESG) criteria. Green retrofits, energy-efficient building designs, and socially oriented housing models may attract outsized allocations as investors seek both performance and positive community impact.
Residential Rental: Demand Resilience Amidst Supply Shifts
Following a year of elevated multifamily completions, the residential rental market is redefining its fundamentals. A decade of under building continues to underpin a sturdy baseline of demand, particularly as demographic trends—including delayed homeownership and lifestyle flexibility—sustain rental appetites. Looking into 2025, several themes stand out:
Supply Dynamics: Multifamily deliveries peaked in 2024. New project starts and permits have declined significantly, setting the stage for a gradual absorption of excess inventory. Markets that experienced short-term oversupply, particularly high-growth Sunbelt regions, may see improved occupancy rates by late 2025.
Deeper, Wider Renter Base: High-income renters and cost-burdened households are expanding the tenant pool, highlighting the need for diverse housing options. Senior living and student housing subsectors, in particular, are benefiting from evolving demographic patterns.
Affordability Pressures: Ongoing affordability concerns—amplified by rising homeownership costs and persistent wage stagnation in some regions—continue to steer many households toward rental markets. Class B and workforce housing are especially well-positioned to capture this demand.
Source: 7 -US Census Bureau and US Department of Housing and Urban Development, as of October 2024. 8 - US Census Bureau, Housing Vacancies & Homeownership, as of Q3 2024. The housing deficit is estimated by comparing the variance of vacancy
Industrial and Logistics: Resetting for Long-Term Growth
The industrial and logistics segment is approaching a major inflection point, with potential for accelerated growth in the latter half of 2025. After an unprecedented period of absorption—fueled by e-commerce, onshoring, and higher inventory levels—construction pipelines moderated significantly in 2024. The resulting supply-demand realignment bodes well for asset stability and incremental rent growth.
Supply Constraints: As new project starts declined, existing facilities are expected to experience higher occupancy rates. Investors should keep an eye on key distribution corridors and last-mile logistics hubs near major population centers.
Technological Integration: Tenant demand increasingly emphasizes automation, warehouse robotics, and sustainable building design. Assets incorporating these features may command higher rents and enjoy stronger tenant retention.
Small Bay Industrial: Smaller, strategically located properties remain particularly attractive given their flexibility for a wide range of tenants—from local businesses to e-commerce fulfillment. The emphasis on proximity to end consumers supports ongoing rent growth and minimal downtime.
Source: CoStar, as of Q3 2024
Aligning with Emerging Opportunities
Real estate is entering a fresh expansionary cycle, but success requires navigating a complex tapestry of shifting demand, capital flows, and technological innovation. Key imperatives for market participants include:
Adaptive Portfolio Strategies: Flexibly allocate capital to sectors and geographies poised for growth—such as workforce housing, BTR communities, and technologically advanced logistics spaces.
Technological and ESG Integration: Embrace sustainability and data-driven insights to enhance asset performance, unlock cost savings, and align with investor priorities.
Risk Management: Monitor local market conditions, regulatory changes, and borrower credit risk to mitigate exposure. Value-driven underwriting and disciplined asset selection remain essential.
Value-Added and Opportunistic Plays: Seek assets offering repositioning potential—whether through physical upgrades, improved property management, or recapitalization—especially in sectors undergoing transformative demand shifts.
As the market transitions into 2025, balancing caution with agility becomes paramount. Investors and operators who proactively respond to dynamic demand trends, tightening credit conditions, and heightened tenant expectations stand to benefit most in the year ahead. By aligning strategic initiatives with these emerging opportunities, market participants can fortify their portfolios and chart a path to sustained growth in an evolving real estate landscape.
Conclusion
The 2025 alternative investment landscape is defined by resilience, innovation, and growth. From AI’s transformative power to the enduring appeal of hedge funds and real estate, alternative assets provide unique opportunities to navigate a complex economic environment. By aligning investments with structural trends, disciplined strategies, and expert management, investors can position themselves to achieve superior risk-adjusted returns in the years ahead.
Elyxium Wealth LLC (“the FIRM ”) is a registered investment adviser located in Beverly Hills, California. The FIRM may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.
This presentation is limited to the dissemination of general information regarding the FIRM’s investment advisory services. Accordingly, the information in this presentation should not be construed, in any manner whatsoever, as a substitute for personalized individual advice from the FIRM. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Any client examples were hypothetical and used to demonstrate a concept.
Past performance is not indicative of future performance. Therefore, no current or prospective client should assume that future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the FIRM), or product referenced directly or indirectly in this presentation, will be profitable. Different types of investments involve varying degrees of risk, & there can be no assurance that any specific investment or investment strategy will suitable for a client’s or prospective client’s investment portfolio.
[i] 1*As tracked by the US Private Equity Buyout Index of Cambridge and Associates - https:/www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/mckinseys-private-markets-annual-review
[ii] Bain’s Global Private Equity Report 2023
[iii] *US has fewer listed companies than China, Financial Times https://www.ft.com/content/73aa5bce-e433-11e9-9743-db5a370481bc
[iv] Source: Capital IQ