AI Boom Raises Market Risks, Fuels Alternative Investments

The AI boom is reshaping equity markets, sharpening concentration risks and beginning to spill over into credit markets, according to a recent analysis from J.P. Morgan Asset Management.

Alternative assets gain attention as market trends shift

The firm’s Guide to Alternatives for the third quarter of 2026 notes that endowments and foundations hold the largest shares of alternative investments among institutional investors, followed by public and private pensions and insurance companies. In the private‑wealth segment, very high‑net‑worth individuals and family offices allocate up to 24 percent to alternatives, while high‑net‑worth and mass‑affluent investors allocate roughly 6 percent and 3 percent, respectively.

J.P. Morgan advises that allocating to alternatives should be outcome‑oriented: first identify the challenge investors face, then select the asset class that can address it. “Generally, however, adding a diversified sleeve of alternatives—real estate, private equity and hedge funds—to traditional stock/bond portfolios can help manage risk and improve return,” the report states.

The traditional 60/40 mix is under pressure. “Against a backdrop of raised equity market valuations and low interest rates relative to history, the 60/40 portfolio still looks expensive,” the analysis says. Even with inflation easing, the real yield on such a portfolio remains negative, prompting investors to look elsewhere for income.

How specific alternative classes complement portfolios

Real assets, including infrastructure and transport, tend to be less correlated with a standard 60/40 allocation while delivering solid income. Private equity and venture capital, by contrast, offer higher total returns but bring greater correlation to public markets and little current income. The report adds that “real estate, real assets and select hedge fund strategies can help to further diversify a portfolio of stocks and bonds.”

Private‑market valuations are normalising, creating a more favourable setting for fresh capital deployment. Existing private‑equity holdings, however, face pressure from lower exit valuations and ageing assets. Distributions remain below historical averages as higher interest rates have dampened exits since 2022, tightening liquidity for both general and limited partners.

Infrastructure and transport assets historically show low correlations with public equities and bonds. Their resilience stems from ties to essential services that remain in demand throughout economic cycles, such as power generation, transportation, communications and other utilities. Regulatory frameworks and long‑term contracts often include built‑in inflation adjustments, allowing revenues to rise alongside higher input costs.

Beyond defensive qualities, infrastructure stands to benefit from the AI upcycle. The surge in AI workloads is driving demand for data centres, which in turn accelerates the need for reliable power generation, grid capacity and energy storage—areas where supply currently lags demand. As a result, infrastructure is evolving from a stable cash‑flow source into an asset class that can also capture AI‑driven capital‑expenditure cycles.

A family office that has traditionally relied on a mix of stocks and bonds might allocate a modest portion to a private‑equity fund focused on emerging AI‑enabled services, while also adding a small stake in a renewable‑energy infrastructure vehicle. Such a blend could smooth returns when public markets wobble and provide exposure to growth that is not yet reflected in listed equities.

Global market strategists Kerry Craig and Adrian Wong argue that alternatives are becoming an increasingly important complement to traditional public‑market allocations. By tapping higher‑growth segments from a broader universe of companies and at an earlier stage of value creation, private equity could help portfolios reduce reliance on the highly concentrated public equity market for growth. At the same time, infrastructure and transport assets provide a differentiated, stable source of income that shows lower correlation to traditional markets and offers an implicit hedge to inflation risks.

While alternatives do not fully replace the role of traditional equities and fixed income, today’s market environment is gradually more favourable for portfolios that diversify with these assets. A thoughtful allocation to alternatives can broaden return drivers, maintain exposure to AI‑led structural growth, and strengthen portfolio resilience in a more volatile market environment.