The Next Frontier in Alternatives

When the calendar turned to 2025, investors carried scars from two bruising years. Private markets, once the darling of global portfolios, had been frozen in a liquidity drought. Distributions slowed, exits dried up, and even the most battle-tested asset managers found themselves navigating uncharted waters. But by mid-year, a new story was taking shape: capital was flowing again, but in new directions and under new rules.

The rebound—just not where you might expect

In the developed markets, caution still reigned. Fundraising figures were sobering: only $384 billion closed in H1, the weakest first half since 2020. Yet beneath those global averages, a quiet resurgence was unfolding in places often overlooked by traditional allocators.

According to the Global Private Capital Association, total private capital investment value across emerging markets jumped 33% to $72.3 billion in the first six months of the year. The epicenters of this rebound were not New York or London, but Mumbai, Jakarta, and Riyadh. India led the way with $18.2 billion deployed, followed closely by Southeast Asia ($11.1 billion) and the Middle East ($4.8 billion). And the drivers were telling: infrastructure and private credit—asset classes once seen as supplementary—had become the main event.

Managers operating in these regions describe a simple truth: the demand for roads, grids, fiber, and data centers is surging, and local banks cannot shoulder the financing needs alone. That gap is where private credit has surged, offering flexible capital at spreads too attractive for global LPs to ignore.

A tale of returns: steady, if not spectacular

On the performance side, private markets entered 2025 on firmer ground. MSCI’s benchmarks show that in Q1:

• Private credit returned +2.0%, led by senior (+2.9%) and mezzanine (+2.4%) strategies.
• Private equity delivered +1.8%, stabilizing after two years of volatility.
• Real assets were up +1.8%, with infrastructure the star performer at +3.1%.

The data tells a story of normalization: no fireworks, but consistency in an environment where listed small caps were underwater. Still, one shadow looms large distributions remain depressed. Managers are returning far less capital than in the 2021 peak, forcing LPs to rethink pacing and liquidity management.

This explains the record-breaking surge in secondaries. In H1 alone, more than $100 billion of secondary deals changed hands—the largest half-year volume ever recorded. For wealth managers and institutional allocators alike, secondaries have become the new liquidity engine.

Latin America’s surprising strength

Nowhere was this story more dramatic than in Latin America. While global investors have often treated the region as cyclical “beta,” hedge funds tracking Latin American markets were the best performers in the world: +13.9% in H1, compared with just +3.9% for the global hedge fund composite. Brazil’s resilient carry trade, Mexico’s equity re-rating, and investor hunger for diversification drove flows back into the region.

Private markets followed suit, albeit selectively. Infrastructure and energy-transition assets in Brazil and Chile drew capital, while Mexican fintechs tapped private credit lines at record levels. For global managers, the takeaway was clear: the region had shifted from being a tactical trade to a structural sleeve in alternatives allocation.

India, Southeast Asia, and the Middle East: the new growth hubs

If Latin America was the surprise, India and Southeast Asia were the inevitability. Together they attracted nearly $30 billion in private capital in H1. Infrastructure deals dominated—ports, data centers, renewable grids—but what struck observers was the rise of private credit. With Indian banks retrenching, international managers stepped into the breach, structuring bespoke financings that blended yield with downside protection.

The Middle East offered another twist. While global venture capital slowed, MENA was the only region worldwide to see both funding and deal volume rise in H1, surpassing $1.55 billion across 300+ deals. Backed by sovereign wealth funds, venture managers deployed into AI, mobility, and digital infrastructure. For allocators wary of frothy Silicon Valley valuations, the Gulf provided both capital and conviction.

What it means for managers

The implications are profound.

• Product-market fit has shifted. The glamour of growth equity and VC has given way to the reliability of credit and infrastructure. Managers with local origination networks and specialist expertise are now commanding LP attention.
• Liquidity engineering is no longer optional. With distributions muted, secondaries, continuation funds, and NAV-based lending have become mainstream tools, not niche solutions.
• Fundraising is more thematic. LPs are backing energy transition, local-currency credit, and digital infra, while generalist buyout pitches struggle.

And for wealth managers

Wealth advisors, too, are repositioning. A Mercer/CAIS study found that 92% already allocate to alternatives, and 91% plan to increase allocations in the next two years. The packaging is changing—evergreen funds, interval vehicles, and semi-liquid structures designed for private wealth are proliferating.

For portfolio construction, the logic is clear:

• Use private credit for yield and ballast.
• Pair with infrastructure for durable growth and inflation protection.
• Deploy into secondaries for liquidity and diversification.
• Add a tactical hedge fund sleeve—especially in Latin America—to capture dispersion while PE/VC distributions remain slow.

The road ahead

Halfway through 2025, alternative investments outside developed markets are no longer a side story—they are the story. The liquidity crunch in New York and London has paradoxically opened a window in Mumbai, São Paulo, and Riyadh.

For asset managers, the challenge is to move from global generalist to local specialist. For wealth managers, it is about navigating liquidity constraints while leaning into non-traditional growth markets

What emerges is a new geography of alternatives: one where the next wave of durable performance is likely to come not from Wall Street, but from the bustling ports of Chennai, the solar fields of Jalisco, and the data corridors of the Gulf.