2024 RESEARCH NOTE #4 Alternative Capital Flows: A Bayesian Approach

Alts Leaders Survey 2024 | Research Note #4

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Rethinking Fund Strategy with Updated Intelligence

Executive Summary

Let us explore the challenge of recency bias and the solution of the Bayes’ Theorem.

Recency Bias is a cognitive bias where we often place too much significance on the latest data or experience. Bayesian Thinking is a rational updating process in which prior beliefs are revised based on new information.

We like to think we update our beliefs every day and we are adaptive as an industry, yet many fund managers don’t apply the same discipline when launching a fund. Instead, they lean heavily on historical fundraising patterns, assuming capital will flow the same way it did last year. That’s recency bias or a frequentist view, and it often fails to anticipate major shifts in capital flows in both the institutional and Private Wealth space.

This research note cautions against recency bias and argues that a Bayesian mindset, constantly updating and revising based on real-time channel input, is essential for anticipating future capital flows.

The Data: Fundraising Flows Then and Now

Look at institutional capital flows from 2019 to 2024:

Institutional Capital Flows

Now, compare with 2025 year-to-date figures:

Institutional Capital Flows

A purely historical view (“frequentist”) would have led to the following 2025 assumptions:

• Private equity will continue to dominate fundraising

• Real assets will hover at around 8% of the total

Here’s what actually happened:

• Private equity’s share declined by 20%

• Real assets nearly doubled, representing 15.3% of flows as of March 31, 2025

• Secondaries experienced explosive growth

These shifts become even more dramatic when flows are broken down by strategy or structure, a topic for a future research note.

Not Just Institutions: Private Wealth Flows Shifted Too

Consider non-traded REITs (NTRs), which dominated private capital flows in 2021 and 2022. As the Fed Funds Rate and the 10-Year Treasury yield climbed, capital rotated out of NTRs and into Business Development Companies (BDCs)and Credit Interval Funds. This realignment became known as the “Great Migration of Alt Capital,” a term Kevin Gannon of RA Stanger coined. A prior probability was confronted with new evidence (interest rate climb, negative operating leverage for Real Estate, and higher risk-free rate). Instead of adopting a refined conclusion, Sponsors filed 22 new Non-traded REITs.

What’s the Solution?

Listen to the Alts Leaders before the market speaks.

In 2023 and 2024, we asked industry gatekeepers what they were planning to allocate to and they told us. The 2024 Alts Leaders Survey offered a forward-looking snapshot of channel preferences.

Had you incorporated this data into your decision-making in 2024 and updated your assumptions, you could have anticipated:

• The surge in Corporate Credit

• The adoption of Infrastructure Funds

• The rise of PE Secondaries

• Are sector-specific funds next?

There’s no guesswork involved. The most successful managers asked, listened, and adapted.

Conclusion

In an increasingly competitive fundraising environment, data from past years is no longer enough. It must be augmented with forward-looking intelligence.

Fund managers who apply a Bayesian approach, updating their strategies as Alts Leaders sentiment shifts, stand the best chance of launching timely, relevant offerings.

Stay informed. Stay adaptive. And most importantly, watch this space for insights from the 2025 Alts Leaders Survey coming soon.

Co-authored with Brendan Knight

Research Associate