Investing in Alternatives Across Macroeconomic Regimes

Investors have long sought to understand how asset classes behave across different economic environments. Macroeconomic regimes — defined by combinations of growth and inflation — provide a framework for analyzing historical performance and constructing resilient portfolios. Traditional 60/40 portfolios of public equities and bonds have delivered strong long‑term returns but are susceptible to regime shifts. Alternative asset classes, including private equity, private credit, real estate, infrastructure and hedge funds, offer diversification and potential for enhanced returns. Understanding how these alternatives perform in different macro regimes can help investors design portfolios that are robust to a range of economic outcomes.

A research model developed by FactSet classifies macro environments into four regimes based on growth and inflation signals: Heating (growth and inflation rising), Growing (growth rising, inflation falling), Slowing (growth and inflation falling) and Stagflation (growth falling, inflation rising) Risky assets — such as equities and high‑yield credit — tend to perform best in Growing and Heating regimes and fare worse in Slowing or Stagflation. Government bonds perform relatively well in Slowing and provide some positive nominal returns even in Stagflation. No single asset class dominates across all regimes, underscoring the need for diversified, regime‑aware portfolios.

For alternative assets, regime analysis reveals nuanced behavior. Private equity has historically delivered attractive long‑term returns, outperforming public equities over multi‑year periods, but returns can vary by vintage and economic conditions. Private credit, with floating rates and senior secured structures, benefits from rising rates and moderate growth. Private real estate offers income and inflation protection but is sensitive to interest rate shocks. Infrastructure assets provide inflation‑linked cash flows and resilience during higher‑inflation periods. Hedge funds, particularly strategies with low net exposure or macro-orientation, can add diversification and have historically outperformed core fixed income on a risk‑adjusted basis. Commodities and real‑asset strategies may provide inflation hedging but can be volatile.

Key Takeaways

• Regime framework: Macroeconomic regimes defined by growth and inflation trends offer a useful lens for analyzing asset performance. Growing and Heating regimes favor risk assets; Slowing and Stagflation favor defensive assets.
• Alternative diversification: Alternative assets exhibit varied sensitivities to growth, inflation and interest rates. Incorporating a mix of private equity, credit, real estate, infrastructure and hedge funds can improve resilience across regimes.
• Private equity: Long‑term returns have exceeded public equities over multi‑year horizons. Vintage diversification and disciplined pacing are crucial. In downturns, secondary and distressed opportunities may offer attractive entry points.
• Private credit: Direct lending yields a premium (~200 bps over syndicated loans) and performed strongly (11.5 %) during high‑rate periods.  Floating‑rate structures provide an inflation hedge.
• Real estate and infrastructure: Private commercial real estate offers inflation protection and steady income. Infrastructure assets have inflation‑linked revenues and exhibit resilience in high‑inflation regimes.
• Hedge funds: Hedge funds have avoided extreme drawdowns and delivered better risk‑adjusted returns than core fixed income.  Higher interest rates improve their return potential.
• Design principles: Regime‑aware portfolios should include strategic allocations to alternatives, vintage and strategy diversification, and realistic expectations around illiquidity and timing. Advisors must communicate the difference between mark‑to‑market fluctuations and long‑term value creation.

Section 1 – Why “Macro Regimes” Matter for Alternatives

1.1 Defining Macroeconomic Regimes

A macroeconomic regime describes a distinct combination of economic growth and inflation conditions. Regime classification helps investors analyze historical performance and prepare for different economic scenarios. FactSet’s regime model uses growth and inflation signals derived from the OECD Composite Leading Indicator and inflation trend measures to categorize the economy into four regimes:

1. Heating (growth up, inflation up): Both economic activity and prices are accelerating. This environment often features strong corporate earnings and rising commodity prices.
2. Growing (growth up, inflation down): Growth is rising while inflation moderates. This is generally the most favorable regime for risk assets, as earnings improve and monetary policy remains supportive.
3. Slowing (growth down, inflation down): Economic growth is decelerating and inflation is easing. Investors typically favour defensive assets, and central banks may cut interest rates.
4. Stagflation (growth down, inflation up): Growth is weak while inflation remains elevated. This regime is challenging for most assets, as margins compress and central banks may tighten monetary policy despite weak growth.

1.2 Why Regime Thinking Matters (and Its Limitations)

Regime analysis helps investors understand how different asset classes and strategies have behaved historically under various economic conditions. It informs strategic allocation decisions, risk management and scenario planning. However, regime thinking is not a timing tool; it does not predict exactly when regimes will change. Regimes can be short‑lived or persistent, and transitions are often unpredictable. Investors should use regime frameworks to guide diversification and risk budgets rather than to time markets.

Section 2 – A High‑Level View of Asset Class Behavior

2.1 Traditional Assets: Equities and Bonds

Public equities: Equities typically perform best in Growing and Heating regimes when earnings and sentiment are strong. In Slowing and Stagflation regimes, equities may suffer as earnings decelerate and costs rise. Cyclical sectors (e.g., consumer discretionary, industrials) are particularly sensitive to growth trends, while defensives (e.g., healthcare, utilities) offer some resilience. Emerging‑market equities may outperform in Heating regimes due to higher commodity exposure but can be volatile.

Bonds: Government bonds perform better in Slowing regimes as interest rates decline and capital seeks safety. They can still deliver positive nominal returns in Stagflation due to flight‑to‑quality demand. High‑yield bonds behave more like equities: they thrive in Growing and Heating regimes but turn negative in Slowing and Stagflation. Investment‑grade credit lies between these extremes, offering moderate yields and some sensitivity to interest rates and spreads.

2.2 Alternative Assets – Broad Observations

Private equity: Private equity offers exposure to long‑term growth but is subject to economic cycles. Cambridge Associates’ US private equity index returned 8.1 % in 2024 and has outperformed the S&P 500 over periods longer than three years. Private equity returns benefit from operational improvements, leverage and value creation but are sensitive to exit markets and financing costs. Performance dispersion across managers and vintages is high. Private equity tends to lag public markets in downturns but may recover faster due to active ownership and long investment horizons.

Private credit: Direct lending provides floating‑rate loans to middle‑market companies. Morgan Stanley’s research notes that direct lending has delivered a gross annualized return of 9.46 % since 2004 and a yield premium of roughly 200 basis points over syndicated loans. In high‑rate environments, direct lending generated 11.5 % returns, outperforming leveraged loans (4.9 %) and high‑yield bonds (6.8 %). Private credit therefore benefits from rising rates and moderate growth but can face default risk during recessions.

Private real estate: Private commercial real estate (CRE) provides income and potential capital appreciation. From 2005–2024, CRE price appreciation averaged 3.4 %, exceeding average inflation of 2.6 %, and income yields averaged 4.1 % from 2015–2024. Real estate typically performs well in Heating regimes due to inflation pass‑through via rents, but high interest rates can hurt valuations. During Slowing or Stagflation, real estate may offer resilience through contracted cash flows but can suffer if economic activity declines sharply.

Infrastructure: Private infrastructure assets, such as regulated utilities and transportation networks, often have inflation‑linked revenue streams. Brookfield notes that infrastructure has historically performed well during periods of above‑average inflation because many contracts include pricing escalators and strong competitive positions allow cost pass‑through. Infrastructure tends to be less sensitive to economic cycles than private equity but may face regulatory and demand risks.

Hedge funds and liquid alternatives: Hedge funds deploy diverse strategies (e.g., long/short equity, event‑driven, macro, systematic) and seek absolute returns with lower correlation to traditional assets. Plante Moran observes that the HFRI Fund Weighted Index avoided extreme declines seen in public equities and outperformed high‑quality core fixed income on a risk‑adjusted basis over a 25‑year period. In higher‑rate environments, hedge funds benefit from higher cash yields on collateral and increased dispersion.However, returns vary widely across strategies and manager skill.

Other diversifiers (commodities and real assets): Commodities can hedge inflation and perform well in Heating regimes, but they are volatile and offer no income. Real‑asset strategies (e.g., timberland, farmland) provide inflation protection and stable cash flows but have limited liquidity.

Section 3 – Deep Dives by Asset Class

3.1 Private Equity

Economic intuition: Private equity involves acquiring companies, improving operations and exiting at higher valuations. Value creation stems from operational efficiencies, revenue growth and financial leverage. Because private equity relies on leverage and exits opportunities, performance is sensitive to economic growth and financing conditions. In Growing regimes, strong earnings and supportive debt markets foster high returns. In Slowing regimes, exit activity declines and leverage can exacerbate losses.

Historical tendencies: Cambridge Associates’ benchmarks show that the US private equity index returned 8.1 % in 2024 and has outperformed public equities over long horizons. However, vintage dispersion is significant; funds raised just before recessions may face poor performance. During the global financial crisis, private equity valuations declined, but many funds recovered and generated strong returns for investors who committed to distressed and secondary strategies. In Stagflation regimes, earnings compression and high financing costs can reduce returns, but operational improvements and sector selection (e.g., healthcare, technology) may mitigate losses.

Implications for allocators: Investors should diversify across vintages, sectors and managers. During downturns, capital deployed into secondary and distressed opportunities can capture attractive discounts and position portfolios for recovery. Portfolio pacing should account for longer holding periods and potential delays in distributions.

3.2 Private Credit / Direct Lending

Economic intuition: Direct lending funds provide senior secured loans to mid‑sized companies, often with floating‑rate coupons. Because coupons reset when interest rates rise, private credit is less sensitive to inflation than fixed‑rate bonds. Returns depend on credit spreads, default rates and recovery rates. In Growing regimes with moderate inflation, private credit delivers steady income. In Heating regimes (growth and inflation rising), floating rates increase yields, benefiting investors. However, if growth slows sharply, default risk increases.

Historical tendencies: Direct lending has generated a gross annualized return of 9.46 % since 2004 and produced 11.5 % returns in high‑rate environments. The yield premium of roughly 200 basis points over syndicated loans underscores the illiquidity and complexity premium investors receive. During recessions, default rates may rise and recovery values may decline, but senior secured status and covenant protections can mitigate losses.

Implications for allocators: Private credit can be an attractive alternative to high‑yield bonds, particularly when interest rates are rising. Allocators should monitor borrower quality, sector exposure and leverage. Diversification across managers and loan vintages is important to manage default risk. In Slowing or Stagflation regimes, caution is warranted as lower growth can increase credit stress.

3.3 Private Real Estate

Economic intuition: Real estate returns derive from rental income and capital appreciation. Leases often include inflation escalators, providing a natural hedge. Property values are influenced by supply and demand, economic growth, interest rates and investor sentiment. In Heating and Growing regimes, real estate tends to perform well due to rising rents and valuations. However, high interest rates can dampen valuations by increasing capitalization rates.

Historical tendencies: From 2005–2024, private US commercial real estate prices appreciated at 3.4 % annually, outpacing inflation of 2.6 %, and income yields averaged 4.1 % from 2015–2024. Real estate’s correlation with public equities is near zero, offering diversification benefits. During recessions, rental income may decline, particularly in sectors such as office or hospitality. In Stagflation regimes, real estate may provide partial inflation protection through rent adjustments but can be hurt by weak growth and high interest rates.

Implications for allocators: Investors should diversify across property types (residential, industrial, logistics, healthcare) and geographies. Debt levels and interest‑rate sensitivity should be managed carefully. Real estate secondaries can provide mid‑life exposure and faster cash‑return profiles. In Slowing regimes, a focus on sectors with resilient demand (e.g., logistics) may improve outcomes.

3.4 Infrastructure

Economic intuition: Infrastructure assets (e.g., regulated utilities, toll roads, renewable energy facilities) provide essential services and often benefit from long-term contracts with inflation‑linked revenue adjustments. Cash flows are generally stable and exhibit lower correlation with economic growth. However, regulatory environments and project leverage can influence returns.

Historical tendencies: Brookfield reports that private infrastructure assets perform well during periods of above‑average inflation because many contracts include inflation escalators and strong market positions allow cost pass‑through. Infrastructure can also act as a diversifier in Slowing regimes due to stable cash flows. However, interest rate rises can reduce valuations if discount rates increase sharply. Renewable infrastructure investments may benefit from secular trends toward decarbonization regardless of regime.

Implications for allocators: Infrastructure can be a core holding in regime‑aware portfolios, providing inflation protection and resilience. Investors should evaluate regulatory risk, contract structures and leverage. Diversification across sectors (regulated, contracted, merchant) and geographies is important. Infrastructure secondaries and co‑investment opportunities can offer targeted exposure to mature assets.

3.5 Hedge Funds and Liquid Alternatives

Economic intuition: Hedge fund strategies aim to produce positive returns with lower correlation to markets by exploiting market inefficiencies and employing leverage, short selling and derivatives. The performance of hedge funds depends on strategy (e.g., equity long/short, event‑driven, macro, relative value) and manager skill. They can adapt exposures across regimes, increasing or decreasing risk as conditions change.

Historical tendencies: Plante Moran notes that hedge funds, as measured by the HFRI Fund Weighted Index, avoided extreme declines experienced by public equities over the last 25 years and outperformed high‑quality core fixed income on a risk‑adjusted basis. Hedge funds benefit from higher cash yields on collateral and increased dispersion in higher‑rate environments. The average return of hedge fund managers is higher when risk‑free rates exceed 2 % compared with periods when rates are below 0.5 %. However, returns vary widely across managers, and some strategies (e.g., macro) may experience periods of underperformance.

Implications for allocators: Hedge funds can serve as a ballast in Slowing and Stagflation regimes, offering diversification and downside protection. Allocators should diversify across strategies and managers, assess liquidity terms and align expectations with each strategy’s risk/return profile. Higher‑rate environments may enhance returns due to improved cash yields and alpha opportunities.

3.6 Other Diversifiers: Commodities and Real‑Asset Strategies

Economic intuition: Commodities provide exposure to real assets such as energy, metals and agriculture. Prices are influenced by supply and demand, geopolitical events and currency move. Commodities often perform well in Heating regimes as inflation expectations rise but can be volatile and offer no income. Timberland, farmland and other real‑asset strategies offer inflation protection and steady cash flows but have limited liquidity.

Historical tendencies and implications: Commodities have delivered strong performance during inflationary periods but have suffered during deflationary cycles. Real‑asset strategies provide lower volatility but require specialized expertise and long holding periods. Investors should consider small allocations to commodities or real‑asset funds as part of a broader inflation hedge.

Section 4 – Building Robust Alternative Allocations Across Regimes

4.1 Strategic versus Tactical Allocations

Investors should distinguish between strategic allocations — long‑term exposures designed to deliver structural diversification — and tactical allocations — shorter‑term tilts based on macro views. Strategic allocations to alternatives (e.g., 10–30 % of total portfolio) should reflect the investor’s time horizon, liquidity needs and risk tolerance. Tactical tilts may adjust exposure to certain strategies or vintages based on expected regime transitions (e.g., increasing private credit in anticipation of rising rates or targeting distressed opportunities during recessions). However, tactical timing is challenging; focusing on diversification and manager quality is more important than timing exact regime shifts.

4.2 Vintage and Strategy Diversification

Just as public equities benefit from diversifying across geographies and sectors, private markets benefit from diversifying across fund vintages and strategies. Investing across multiple vintages reduces exposure to any single macro environment. Within alternatives, allocations to buyout, growth, venture, infrastructure, real estate, credit and hedge funds create complementary exposures. Investors should monitor correlation and risk budgets, ensuring that no single strategy dominates. Access to secondary markets can help adjust vintage exposure and accelerate deployment.

4.3 Role of Evergreen versus Closed‑End Structures

Evergreen funds (interval funds, open‑ended private market funds) offer periodic liquidity and continuous fundraising, making them suitable for wealth platforms and defined‑contribution plans. Closed‑end funds draw capital over an investment period and distribute proceeds over time, aligning with long‑term value creation. In regime‑aware portfolios, evergreen structures may provide flexibility to rebalance exposures as regimes shift, whereas closed‑end funds offer disciplined capital deployment and alignment with managers’ value‑creation plans. Investors should match structure to objectives and liquidity needs.

4.4 Complementing the 60/40 Core

An illustrative example: consider a portfolio anchored by a 60/40 allocation to public equities and bonds. Adding a 20 % alternatives sleeve split among private equity (8 %), private credit (6 %), real estate (4 %), infrastructure (2 %) and hedge funds (0–3 %) can improve diversification. In a Heating regime, private equity and commodities may outperform, while hedge funds may capture alpha from market dispersion. In Slowing or Stagflation regimes, infrastructure and hedge funds can provide resilience and steady income. A scenario analysis might show that during a “high inflation & slow growth” environment, infrastructure returns could remain stable due to inflation‑linked contracts, while private credit may maintain income due to floating rates. In a “strong recovery with falling rates,” private equity and growth‑oriented alternatives may deliver outsized returns, but valuations could compress if rates fall further. In a “higher‑for‑longer rates with resilient growth” environment, private credit and real assets may perform well, while highly leveraged strategies may face headwinds.

4.5 Scenario‑Based Allocation Examples

High inflation & slow growth (Stagflation): Increase exposure to infrastructure and real assets to capture inflation‑linked revenues; maintain moderate private credit allocation for floating‑rate income; reduce equity beta; allocate to hedge funds with macro or relative‑value strategies. Real estate sectors with pricing power (e.g., industrial) may offer resilience.

Strong recovery with falling rates (Growing): Favor growth‑oriented private equity and venture capital; tilt toward cyclical infrastructure (e.g., transport); maintain core real estate; consider raising commitments to secondary and co‑investment opportunities to capture quick deployment.

Higher‑for‑longer rates with resilient growth (Heating): Allocate to private credit to benefit from higher floating‑rate coupons; increase real‑asset exposure; maintain diversified private equity and infrastructure; ensure hedge fund strategies can capture dispersion in equity and credit markets.

4.6 Implementation Considerations

Implementing regime‑aware alternative allocations involves careful planning:

1. Due diligence: Assess manager track records across cycles, investment processes and alignment of interests. Evaluate how managers have performed in different regimes and whether they can adapt strategies.
2. Liquidity management: Build cash reserves and consider evergreen structures to meet capital calls and redemptions. Understand redemption policies and gating mechanisms.
3. Pacing: Commit capital steadily across cycles to avoid market timing. Use secondary markets to adjust exposures and capture discounts during downturns.
4. Risk monitoring: Monitor leverage, sector concentrations, and macro exposures. Stress test portfolios for regime shifts (e.g., rising rates, inflation shocks).
5. Client education: Communicate the long‑term nature of alternatives, the variability of interim valuations and the role of each strategy in the overall portfolio.

Section 5 – Implementation & Client Communication for Advisors

5.1 Translating Regime Thinking into Client‑Friendly Language

Clients may not be familiar with macroeconomic terminology. Advisors should explain regimes using everyday analogies: growth and inflation are like the speed and temperature of the economy. “Heating” means the economy is running hot; “Slowing” means the economy is losing momentum. Advisors should emphasize that regimes are descriptive, not predictive, and that diversified portfolios are designed to perform reasonably well across different environments.

5.2 Setting Expectations Around Time Horizons and Drawdowns

Alternative investments have long lock‑ups and may experience interim mark‑to‑market declines. Advisors should set expectations that private equity and real asset investments may not be sold easily and that returns are realized over years. Illiquidity is compensated by higher potential returns. Clients should understand the difference between temporary valuation fluctuations and long‑term value creation. Historical data show that hedge funds can reduce volatility and drawdowns, but performance varies by manager. Private credit may provide steady income, but default risk can increase in recessions.

5.3 Client Q&A for Common Regime‑Related Concerns

1. What happens to my private equity allocation in a recession? Private equity valuations may decline, and distributions may slow. However, distressed and secondary investments can offer attractive opportunities. Diversifying across vintages mitigates the impact of any one downturn.
2. How do rising rates affect private credit? Floating‑rate loans mean yields increase when rates rise, but higher borrowing costs can strain borrowers and increase default risk. Managers should focus on credit quality and covenants.
3. Does real estate protect against inflation? Rents often have inflation escalators, and property values may rise with replacement costs. But high rates can depress valuations, property type and location matter.
4. Can infrastructure cushion a portfolio during high inflation? Many infrastructure assets have inflation‑linked revenues and strong pricing power, providing a hedge. However, regulatory risks and project leverage must be considered.
5. Why include hedge funds? Hedge funds can diversify returns and may profit from market dislocations. Higher interest rates enhance their return potential, but manager selection is critical.

Section 6 – Risks, Limitations, and Misconceptions

6.1 Limitations of Regime Analysis

Regime frameworks are based on historical averages and may not capture idiosyncratic shocks (e.g., pandemics, geopolitical crises). They rely on specific indicators (growth and inflation) and may oversimplify complex macro dynamics. Regime duration and transitions are unpredictable; sudden shifts can catch investors off guard. Regime analysis should inform diversification and risk management, not serve as a market‑timing tool.

6.2 Structural Risks of Alternatives

Alternatives come with specific risks:

1. Illiquidity: Private assets cannot be sold easily. Investors must be comfortable committing capital for multi‑year periods.
2. Complexity: Strategies involve specialized expertise, due diligence and monitoring. Non‑transparent structures require trust in manager reporting.
3. Manager dispersion: Returns vary widely across managers. Top‑quartile managers often deliver most of the alpha, while bottom‑quartile managers may underperform.
4. Leverage: Many private strategies use debt to enhance returns. This amplifies gains and losses, especially in downturns.
5. Regulatory change: Policy shifts affecting tax treatment, disclosure requirements or capital rules can impact returns and liquidity.

6.3 Misconceptions About Alternatives Across Regimes

1. Alternatives always outperform: Alternatives can offer attractive risk‑adjusted returns, but they are not immune to market cycles. Real estate suffered during the global financial crisis; private equity valuations fell; hedge funds experienced drawdowns. Diversification and manager selection are key.
2. Private credit is risk‑free because of senior secured status: While direct lending has historically provided stable returns, defaults can occur. Seniority mitigates losses but does not eliminate them.
3. Real assets automatically hedge inflation: While many real‑asset strategies provide inflation protection, factors such as oversupply, regulatory changes or technological disruption can suppress returns.

Closing – Designing Alternatives Programs for an Uncertain Cycle

As economic uncertainty persists, institutional and wealth investors are increasingly turning to alternative assets to enhance diversification and return potential. Macroeconomic regimes provide a framework for understanding how these assets behave across different environments, but they should not dictate precise timing. Instead, investors should focus on building robust, well‑diversified portfolios that can weather various scenarios.

Principles for Investment Committees and CIOs

1. Establish strategic allocations: Determine long‑term target weights for alternative asset classes based on objectives, risk tolerance and liquidity needs. Allocate capital across private equity, credit, real assets, infrastructure and hedge funds.
2. Diversify across vintages and strategies: Spread commitments over multiple years and across sectors to reduce timing risk. Use secondary markets to adjust exposures and accelerate deployment.
3. Select managers carefully: Conduct thorough due diligence on managers’ track records, investment processes and alignment of interests. Consider how managers have navigated different macro environments and whether they can adapt strategies.
4. Build flexibility: Incorporate evergreen structures or interval funds to provide some liquidity and allow rebalancing as conditions change. Maintain cash reserves to meet capital calls and opportunistic allocations.
5. Monitor and communicate: Regularly review portfolio performance relative to objectives and adjust allocations when necessary. Educate stakeholders about the long‑term nature of alternatives and the expected variability of interim valuations.
6. Scenario planning: Conduct stress tests and scenario analyses to evaluate the potential impact of high inflation, recession, or rapid recovery on alternative exposures. Use these insights to refine pacing and risk management.

Questions for Further Reflection

1. How will demographic shifts, technological disruption and decarbonization influence macro regimes and alternative asset returns?
2. What is the appropriate balance between evergreen and closed‑end structures given our liquidity profile?
3. How do we incorporate sustainability and ESG considerations into our alternative allocations across regimes?
4. What governance policies should be implemented to manage conflicts of interest, valuation practices and manager incentives?
5. How can we effectively communicate the benefits and risks of alternatives to stakeholders with varying levels of financial sophistication?

By considering these questions and adhering to principles of diversification, disciplined pacing and thoughtful manager selection, investors can design alternatives programs that support long‑term objectives and withstand macroeconomic uncertainty.

References

FactSet Research Systems. Mix and Match: Assigning Assets to Economic Regimes.
Primary source for macroeconomic regime definitions, in-regime return calculations, and forward-return framework.

Cambridge Associates. US Private Equity & Venture Capital Index and Selected Benchmark Statistics. Benchmark data for long-term private equity returns and 2024 index performance.

Morgan Stanley Investment Management. European Private Credit: Portfolio Construction and Performance. Source for long-term direct lending returns, floating-rate behavior, and yield premium analysis.

State Street Global Advisors. Why Private Commercial Real Estate? Data on CRE income yields, long-term inflation-adjusted appreciation, and diversification characteristics.

Brookfield Asset Management. Why Private Infrastructure? Insights into inflation-linked infrastructure revenue models and performance resilience in elevated-inflation environments.

Plante Moran. Hedge Funds in a Higher-Rate Environment. Analysis of hedge fund drawdown behavior, risk-adjusted performance, and sensitivity to interest-rate regimes.