Capital Formation Outlook

Prepared by Mark Goldberg | October 2025 | Research Note #3

---

Methodology & Interpretation Notes

This research note is based on the combined data of the 2025 Alts Leaders Survey for the years 2025 and 2026, as well as Robert A. Stanger & Company for 2020–2024 data. The Stanger provides the most comprehensive coverage of registered fund capital formation available, but coverage of private funds is less complete, as many do not publicly file information. Therefore, when reviewing this data, please note that it offers “directional” insights on flows, but it does not capture some non-reporting private funds. The 2025 and 2026 figures represent the aggregated projections of 2025 survey respondents, reflecting their expectations for new capital raised by asset classes across the private wealth distribution ecosystem. Respondents include leading firms across wirehouse/regional, independent broker-dealer, and RIA channels. Collectively, the survey captures nearly 70% of private-wealth capital flows into private-market alternatives. Data is presented in billions of dollars, segmented by asset class (Credit, Real Estate, Private Equity, Infrastructure, Energy). The projections reflect respondents’ best estimates as of mid-2025.

Industry-Wide Capital From 2020 – Projected 2025 + 2026 (in billions)

Executive Summary

The 2025 Alts Leaders Survey forecasts a 17.7% increase in total alternative fundraising from 2025 to 2026, rising from $192 billion to $226 billion. While Credit remains the dominant asset class representing 58% of projected flows, the fastest growth rates are expected in Private Equity (+26%) and Infrastructure (+69%). Notably these percentage growth rates are of a lower base. However, it was a very similar base that Credit Funds had in 2021. The analysis reveals a private wealth alternatives market that is both maturing and diversifying: Credit has evolved into the core alternative allocation, reflecting the institutionalization of private lending and sustained demand for yield. Real Estate, once the center of gravity, has somewhat stabilized following post-pandemic headwinds and rising financing costs. Private Equity and Infrastructure are expanding rapidly, supported by product innovation, broader platform access, and investor appetite for long-term, inflation-resilient strategies. Taken together, these trends suggest that by 2026, private-wealth fundraising will achieve both scale and diversification comparable to institutional markets.

1. Credit’s Dominance in 2025–2026 Flows

Credit is projected to grow from $112 billion in 2025 to $119 billion in 2026, representing 58% of all projected alternative fund flows. While year-over-year growth moderates to roughly 6%, Credit remains the largest single destination for new capital. From 2020 to 2026, Credit fundraising expands nearly 17-fold, illustrating its rapid emergence as the anchor of private-wealth alternative allocations.

Credit’s dominance reflects its evolution from a niche yield strategy into a core alternative asset class for private-wealth investors. Advisors increasingly view it as a strategic fixed-income complement, offering differentiated return drivers and consistent cash flow relative to public markets. A significant portion of the private wealth market particularly retirement and pre-retirement clients and the advisors who construct income-oriented portfolios, has long sought current-yield products.

Key Drivers Include:


• The institutionalization of private credit: scaled managers with institutional-grade underwriting, track records, and risk management.

• The entry of the largest institutional asset managers (Blackstone, Apollo, Ares, KKR, Blue Owl, and others) into the private-wealth market has brought credibility, distribution infrastructure, and product innovation that have accelerated adoption.

• The broadening of distribution access, as wirehouse, RIA, and independent BD platforms integrate private-credit solutions into their model portfolios.

• The diversification of credit strategies, from senior and direct lending to asset backed credit allows continued expansion even as Credit’s market share stabilizes.

• The structural advantage of organic liquidity: private-credit portfolios often feature laddered, self-amortizing loans and active secondary markets that recycle capital, supporting the interval-fund format popular among RIAs (e.g., Cliffwater), which balances access and liquidity management within a regulated framework.

Cliffwater Corporate Lending Fund identified the need and filled the gap for access to a diversified portfolio of private credit in a registered vehicle at a reduced cost (as compared to other alternative vehicles), making it more easily accessible to the private wealth market. Their meteoric rise from RIA-centric beginnings to commanding nearly $30 billion in a credit interval vehicle, with $10.9 billion in gross fundraise in the prior twelve months ending September 2025, is a world-class case study of how to conceive and execute a strategy to meet a market need.

2. Broad-Based Growth but Uneven Composition

Total alternative fundraising is projected to rise from $192 billion in 2025 to $226 billion in 2026, a 17.7% year-over-year increase. Every asset class except Energy is expected to grow, with robust percentage gains in Private Equity (+26%) and Infrastructure (+69%). Notably, these percentage growth rates are of a lower base. However, it was a very similar base that Credit Funds had in 2021. Credit remains the largest single category, but overall expansion reflects renewed activity across all segments following the 2023–2024 consolidation period.

The projections point to an industry entering a renewed expansion cycle after two years of dislocation and recalibration. Several factors are converging to support this rebound: platform re-engagement, portfolio repositioning, normalization of liquidity windows, and greater product maturity buoyed by higher base rates driving higher returns in these products.

Growth is expected to be broad-based across wirehouse, independent BD, and RIA channels, but drivers differ by channel. Wirehouses continue to dominate in absolute volume, independent BDs remain pivotal in early-stage product adoption, and RIAs represent the fastest-growing segment, supported by model portfolios and access to semi-liquid structures.

The projected 17.7% growth is not merely a cyclical rebound; it signals structural momentum toward mainstream integration of alternatives within private-wealth portfolios. However, the composition of that growth is shifting: Credit provides stability, while Private Equity and Infrastructure supply the incremental acceleration. The resulting mix suggests that 2026 will continue the trend towards private-wealth alternative fundraising, achieving both the scale and diversification comparable to institutional markets.

3. Fastest Growth: Private Equity and Infrastructure

Private Equity is projected to grow from $31 billion in 2025 to $39 billion in 2026 amongst the respondents, a 26% increase. Infrastructure shows an even more pronounced jump from $13 billion to $22 billion, a 69% increase. Combined, these two categories account for nearly 30% of incremental growth in total alternative fundraising between 2025 and 2026.

The acceleration of Private Equity and Infrastructure reflects a shift in investor demand from solely income-oriented strategies to unique strategies in PE and long-duration inflation-protected themes. For several years, Real Estate Offerings dominated capital flows, followed now by the dominance of credit strategies. There are early signs we are undergoing a shift towards equity-based alternatives. Innovation around the use of secondaries in Private Equity Offerings, thematic infrastructure funds, and even some sector-specific real estate funds is gaining the interest of advisors.

Private Equity Momentum:

Distribution firms report increasing interest in core and growth-equity strategies, not just buyout funds, especially within evergreen and semi-liquid vehicles designed for private wealth. Managers with strong institutional pedigrees (e.g., KKR, Blackstone, Stepstone, and Partners Group) are expanding their wealth-focused offerings, indicating that Private Equity is shifting from a niche to a more repeatable investment approach.

Innovations around structure make the strategies more practical for use in private client portfolios:

• NAV-based facilities, secured by the fund’s existing investments rather than uncalled commitments, provide managers with flexible liquidity to fund follow-ons, manage cash flow, and smooth distributions across market cycles.

• Their growing use reflects the institutional maturity of wealth-oriented vehicles, enhancing fund-level liquidity and stability while aligning evergreen and semi-liquid structures with the operational needs of RIAs and private banks.

• Investor capital is fully deployed at inception, reducing the inefficiency and timing uncertainty of traditional capital calls and unfunded commitments.
  

We also observe the growing use of secondary transactions by private equity managers, both GP-led and LP-led, to provide interim liquidity and flexibility in portfolio management. These secondary markets have developed into a vital tool for fund sponsors and investors, helping to smooth return profiles, manage duration risk, and maintain investor interest through more consistent distribution activity.

For fund managers accessing the private wealth market today, it can also create attractive entry points. By acquiring fund interests or fund assets at a discount to GP-stated NAVs, investors can capture the liquidity discount and potentially enhance returns, while gaining exposure to more seasoned portfolios with greater visibility into underlying asset performance. It implies the underlying investment is of shorter duration than a primary fund and adds to the liquidity profile of the fund. In the longer term, returns will be driven by the selection of underlying funds/assets; discounts available on purchase in the secondary market are not a substitute for fundamental company selection.

It is also worth noting that Venture Capital Funds are receiving increasing attention particularly with RIAs. This topic will be covered in a later note.

Infrastructure Funds coming of age:

Infrastructure Funds are projected to surge 69% according to Alts Leaders respondents, as they emerge as a fourth pillar of private-wealth alternatives. The appeal is both thematic and structural: energy transition, digital infrastructure, and core utilities offer predictable yield, inflation protection, and tangible asset backing. Several respondents cited regulatory clarity and improved product design, including open-end or semi-liquid structures, as key catalysts for 2025–2026. The strong showing follows a near-zero baseline through 2022, marking Infrastructure’s shift from institutional to mainstream allocation consideration. The passing of the Bipartisan Infrastructure Law in November 2021 and the media attention that has followed may have helped the mass affluent appreciate both the need and opportunity of investing in this asset class.

Private Equity and Infrastructure together signal a broadening of the private-wealth opportunity set. Where Credit has achieved scale and Real Estate is stabilizing (net flows are mildly negative after considering redemptions), PE and Infrastructure provide the incremental growth engine for the next phase of capital formation. Their expansion suggests that by 2026, the alternative investments landscape for private wealth will resemble a multi-asset ecosystem, anchored by Credit, diversified by Real Assets, and increasingly driven by equity strategies with institutional lineage.

4. Real Estate: From Dominance to Recalibration

For much of the past decade, Real Estate was the dominant asset class in private-wealth alternative fundraising. Between 2020 and 2022, Real Estate offerings raised roughly $120 billion in aggregate, accounting for more than half of all alternative capital formation across private-wealth channels. By contrast, 2023 and 2024 marked a sharp contraction. Total Real Estate capital formation declined from $53.9 billion in 2022 to $23.4 billion in 2023, and only $21.4 billion in 2024 a decline of over 60 percent from peak levels.

The downturn was driven less by fading structural demand and more by a confluence of cyclical and market-specific pressures:

1. COVID-19 dislocations in the office and retail sectors weakened investor confidence and delayed new product formation.

2. Cap-rate inversion relative to financing costs made many property acquisitions uneconomic, reducing new fund launches and portfolio turnover.

3. Redemption activity in non-traded REITs during 2023–2024 further constrained net fundraising as investors rebalanced toward higher-yielding credit strategies.

4. Yield compression across asset classes reshaped portfolio preferences. When rates were near zero, Real Estate’s 5–6 percent distributions compared favorably with fixed income. Today, however, money-market yields around 4 percent, investment-grade bonds near 6 percent, and BDCs offering roughly 10 percent have shifted the income hierarchy, reducing Real Estate’s relative appeal for yield-sensitive investors.

Real Estate’s retrenchment represents a cyclical reset, not a structural retreat. The asset class remains essential for diversification, inflation protection, and tangible-asset exposure. Valuation resets are largely complete, and forward cap rates are normalizing alongside declining financing costs. Capital formation is gradually resuming, led by industrial, logistics, data-center, and residential strategies. Managers are aligning liquidity terms and redemption policies more tightly with portfolio duration, improving structural integrity.

Real Estate, once the center of gravity for private-wealth alternatives, has yielded that position to Credit but remains a cornerstone of diversified portfolios, poised for measured recovery as market conditions stabilize.