By Steve Garmhausen

Alternative investments have had quite a run: They gained traction in the 1990s and 2000s in pensions and endowments, got a boost as more companies began staying private for longer after the 2008-09 financial crisis, and are now proliferating within individual investors' portfolios as asset managers provide easier access and include more asset classes, such as artificial-intelligence infrastructure and railroad leasing. With trillions of dollars chasing private investments globally, choosing winners has become trickier. We asked several investment professionals which types of alts they like best right now.

Yes to Venture Capital, Be Wary of Secondaries

Lisa Shalett, chief investment officer, Morgan Stanley Wealth Management

The two that we're most focused on are venture capital and growth equity. So, that's early-stage as well as intermediate-stage venture capital. We had several years following the 2021-22 period where a lot of investments were made at very high valuations; roughly 40% of them were software as a service. Of those, the vast majority were pre-generative-AI business models. Our thesis is that we've now sufficiently passed into the maturation phase of the technology, where the new business models being funded are actually native gen-AI business models. We're very excited about the potential opportunities in this vintage.

Meanwhile, we're very cautious about secondaries in both private credit and private equity, to the extent that the investor doesn't have good transparency into what their secondary fund really owns. We think some of the stuff being sold into the secondaries market, while it's obviously being sold at a discount, may have some zombie exposure [exposure to investments that may tie up capital with no realistic upside]. If you look at the horrendous selloffs in software companies earlier this month, it coincided with some really weak performance in direct lending, which is reflected in business development companies. It all rhymes, if you know what I mean. Secondaries were our No. 1 preference in private investments the past two years, but now we're saying investors should maybe even be wary of secondaries.

Look at Railroad Leasing and Electric Grid Conversion

Antonio Rodrigues, chief investment officer, Procyon Partners

In the hard-assets category, railroad leasing is one of the main funds within a fund of funds that we created. [Railroad leasing] is extraordinarily neutrally correlated to most other asset classes, both public and private. And we've got what we think is a really good manager that is just printing cash quarter over quarter, regardless of the macro environment. If you're moving large amounts of goods across the country, you need to use railcars. Companies typically don't want to own railcars, so private owners will rent these railcars through intermediaries.

Investors are a little worried about private credit, and we're staying away from some of the larger funds and focusing on niche private credit. We're looking for bespoke middle-market deals that maybe other lenders didn't quite understand, but that a smaller team can dig in and work on. One team we like is Piney Lake Capital Management. They don't lend to only one particular industry, which makes their portfolio diversified, resilient, and priced appropriately. They're yielding around 13% to 15%.

On the private-equity side, we're adding money to the grid conversion story. The grid conversion is being driven by increased demand from electric vehicles, AI-computing infrastructure buildout, and so forth. We're invested with a team that has expertise working with electrical contractors across state lines. With electrical contracting, rules and regulations vary from state to state and town to town, so having someone who can logistically deal with that is very helpful.

Consider GP Staking and AI Infrastructure

Ben Sayer, alternative investments group head, MAI Capital

We're excited about two areas in alternatives. The first is GP [general partner] staking, where you're making a minority investment in an alternative asset manager. It's a non-control, passive stake in their business, but you get to participate via sharing their management fees, their GP commitments, and performance fees going forward.

With the democratization of alternatives, all these new avenues are opening up for alternative asset managers to raise capital and access new clients. We think the best way to play that is by being on the side of the GPs, where growth in fee-paying assets under management is going to benefit your investment. We've put together a commingled fund at MAI so we can aggregate our clients' capital, then go find best-in-class partners to invest alongside.

The other exciting area is investing in the data-center buildout with the rise of AI -- basically the picks and shovels of the AI infrastructure realm. There are a number of big hyperscalers out there that are spending a ton in capital expenditures and telling us they're going to continue doing it out into the future. But a lot of these companies have other very profitable core businesses, so they're great credits. They sign long-term leases and guarantee them with the full faith and credit of their entire organization. You can get very attractive financing because banks are keen to lend against real estate. When you combine all those factors, we think we can hit midteens returns with a very safe downside.

Wealth Managers Can Lead VC Rounds

Haley Schaffer, founder and managing partner, Waypoint West

Too much capital has flowed to the parts of AI that people interact with directly. Those areas are the most crowded today, and in many cases they are also the spaces that are most vulnerable to obsolescence risk. We're more excited about the underappreciated layers of the AI stack -- the infrastructure that benefits regardless of which AI model or platform ultimately wins.

The companies we're excited about are addressing problems like inference cost, memory restrictions, lack of power, and latency. We want to be running toward these companies and the infrastructure that is finding solutions for these different breakpoints.

A lot of founders are starting to talk about shifting from just working with venture-capital firms to also working with investment advisory firms to lead their funding rounds. In early February, we completed a Series B [funding round] in a semiconductor company that's trying to solve a problem with inference workloads [the computing needed to run trained AI models to answer questions or make predictions in real time]. The founder had top-tier VCs in his Series A, and for his Series B, which closed this week, he wanted scaled capital that didn't have sharp elbows or an agenda. Often, founders get frustrated with some of the growth capital that has its own agenda and timeline. For this opportunity, we partnered with another investment advisory firm that's based out of the Midwest. They actually led the deal, which is unprecedented. The company is called Positron AI.

Hedge Fund Strategies Are Working

Alli McCartney, UBS private wealth advisor

With equity markets at or near all-time highs and credit spreads historically tight, we believe adding hedge funds to portfolios can improve growth potential and diversification and insulate against market and geopolitical volatility.

Long-short or market-neutral managers and strategies can be nimble and generate return in rising and falling markets. Global macro [a strategy that examines global economic and political trends] tends to benefit portfolios in highly volatile and geopolitically fraught environments. The resurgence of mergers and acquisitions has allowed for the return of the merger-arbitrage strategy.

We invest in private equity for two predominant reasons. We believe that in certain circumstances, private markets provide more direct, bespoke access to secular trends and discrete structural themes than investments available in the public markets. And we believe there are structural and portfolio-level benefits, including opportunities to create liquidity premiums, diversification, and income.

From a growth perspective, from an attractiveness perspective, from an education perspective, the biggest question I get is, "How do I invest in the future of AI? How do I diversify my portfolio beyond hyperscalers?" We worked with a respected force in Silicon Valley to put together a part-private, part-public hybrid vehicle that, after a one-year lockup, has monthly liquidity that allows people to experience the growth of a technological revolution in a way that simply didn't exist even five years ago.

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February 21, 2026 09:31 ET (14:31 GMT)

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