Global asset owners are increasingly turning to alternative investments as a core part of their portfolios, reflecting a broader shift in institutional strategy and investment philosophy. According to a recent global study conducted by Northern Trust, nearly 86% of global institutional portfolios now include private assets—marking a significant rise in interest toward non-traditional investments such as private equity, infrastructure, real estate, and private debt.
Amid increasing market complexity, persistent inflation, and ongoing geopolitical uncertainty, global asset owners are strategically reshaping their portfolios to adapt and thrive. One of the most notable shifts in recent years has been the growing embrace of alternative investments. This evolution is not merely tactical—it reflects a broader transformation in institutional investment thinking. Alternatives such as private equity, real estate, infrastructure, and private debt are increasingly viewed as essential components of a diversified portfolio. These assets offer the dual benefit of serving as a hedge against traditional market volatility while also presenting opportunities for enhanced returns, or alpha. For asset owners seeking resilience in turbulent times and consistent performance over the long term, alternatives provide a valuable toolset. This pivot also illustrates a greater willingness to explore non-traditional strategies, underscoring the importance of innovation and flexibility in institutional investing. Ultimately, this strategic shift supports more sustainable, forward-looking portfolio construction.
Shifting Portfolio Composition: A New Investment Norm
Northern Trust’s 2025 peer study, titled Asset Owners in Focus: Global Asset Owner Peer Study, surveyed 180 global asset owners with portfolio sizes ranging from $1 billion to over $500 billion. Participants included pension funds, sovereign wealth funds, outsourced chief investment officer (OCIO) firms, family offices, endowments, and other large institutions.
According to the survey, the average portfolio allocation remains weighted towards traditional assets, with 42% allocated to equities and 27% to fixed income. However, 13% of the portfolio is now dedicated to private market assets—a share that has grown consistently over the past decade.
The study highlights a significant shift in institutional investment strategy, as asset owners increasingly reallocate capital toward private markets. This trend is driven not only by the pursuit of higher yields but also by a more comprehensive transformation in risk management and diversification practices. As traditional asset classes become more susceptible to market volatility and macroeconomic pressures, institutions are rethinking their portfolio construction. Private markets—encompassing private equity, infrastructure, and real estate—offer uncorrelated returns and long-term growth potential, making them attractive in uncertain environments. Moreover, these investments enable institutions to access unique opportunities that are often unavailable in public markets. The move toward alternatives reflects a growing recognition that achieving resilience requires more than just balancing equities and bonds; it demands exposure to differentiated assets that can withstand economic shocks. This reallocation marks a deeper evolution in how asset owners approach portfolio stability, performance, and sustainability in a rapidly changing world.
The Rise of Private Markets
Private markets—including private equity, real estate, and infrastructure—have become a staple in institutional portfolios. A staggering 86% of asset owners surveyed are invested in private markets, with many citing the asset class’s potential to provide long-term returns, inflation protection, and uncorrelated performance relative to public markets.
Private debt, in particular, has surged as a favored sub-category, growing substantially over the past ten years. Once considered a niche strategy, it is now central to many institutions’ approaches to income generation and diversification.
Mark Austin, Northern Trust’s pensions and insurance executive for EMEA, noted that this shift is part of a broader sophistication in institutional investing. “Institutions are expanding their asset classes and becoming more sophisticated. They are expecting more from their service providers, and there is an evolution in increasingly outsourcing trading and middle office.”
Flexible Portfolio Rebalancing Strategies
To navigate market volatility and shifting allocations, most institutions have adopted flexible rebalancing strategies. According to the survey, 71% of respondents allow portfolio deviations within a +/- 10% threshold, while 11% are even more lenient, allowing as much as +/- 20%.
This leeway enables institutions to manage costs and time more efficiently. “The flexibility offered by these thresholds not only avoids additional trading costs but also saves precious time – for both investment and operations teams – that may have been spent rebalancing portfolios to stay in line with targets,” the report notes.
Such flexibility also reflects the pragmatic approach institutions are adopting, recognizing the need to be agile in uncertain market environments.
Hedge Funds and Diversifying Assets Remain Relevant
Besides private markets, other alternative strategies are gaining traction. 68% of respondents invest in hedge funds, absolute return strategies, and other diversifiers, underscoring a comprehensive approach to alternative investing.
These assets serve to balance risk across the portfolio and capitalize on alpha-generating opportunities that traditional asset classes may not offer in the current climate.
Digital Assets Gain Institutional Attention
In a remarkable shift, 21% of asset owners that allocate to private markets are now also investing in digital assets. These include cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), and tokenized assets.
While allocations remain relatively small, the trend is notable given the institutional hesitation seen just a few years ago. The report attributes this increased interest to the maturation of digital infrastructure and the role of blockchain technology in enhancing transparency and operational efficiency.
“The rise in interest has been supported by the growth of digital infrastructure, as well as digital assets’ role in supporting the growth and development of private assets more broadly, as digitization can enable a greater degree of transparency and efficiency,” the report says.
Liquidity Management and Capital Calls
While the opportunities in alternative investments are appealing, they are not without challenges. Liquidity management has emerged as a top concern, particularly given the nature of capital calls in private markets.
Mark Austin emphasized the importance of balancing risk and opportunity: “Asset owners need to balance the risk and opportunity. It also makes liquidity management more important, as, for example, alternatives have capital calls.”
Liquidity risk is now the top-three concern for 54% of respondents, underscoring the need for better liquidity forecasting tools and robust internal governance.
Predominance of Active Management in Alternatives
For most asset owners, alternative assets require specialized skills and knowledge that justify active management. 66% of institutions use primarily active management strategies in their alternative asset portfolios, trusting that expertise and deal-sourcing capabilities provide a critical edge in these less liquid markets.
This is consistent with the general perception that alternatives—unlike passive equities or fixed income—require careful selection and operational oversight to unlock their full potential.
Technology as a Catalyst for Institutional Growth
In the face of rising complexity and regulatory pressures, technology has become a strategic imperative. Portfolio analytics tools (51%) and compliance and regulatory reporting (48%) top the list of technology spending priorities for asset owners.
James Wright, head of asset owners, EMEA at Northern Trust, stated that asset owners are increasingly turning to data and analytics to mitigate both operational and investment risk. “As regulatory pressures rise and the need for more robust data management grows, asset owners are looking to strengthen their decision-making capabilities and adapt to evolving regulatory landscapes.”
The Outsourcing Trend Gains Momentum
The survey highlights a growing reliance on third-party providers to manage complexity and support operational needs. Angelo Calvitto, head of Asia-Pacific at Northern Trust, said, “Many asset owners are leveraging service providers to scale their operations and focus on core activities, particularly in areas like administration for alternative investments.”
Outsourcing has emerged as a key strategy, helping institutions streamline operations, gain access to expertise, and focus internal resources on investment performance rather than administrative burdens.
Frequently Asked Questions
What are alternative investments?
Alternative investments include assets like private equity, real estate, infrastructure, hedge funds, private debt, and digital assets like cryptocurrencies.
Why are global asset owners increasing their allocations to alternative investments?
Asset owners are seeking diversification, higher returns, and protection against market volatility and economic uncertainty.
What types of alternative assets are most commonly allocated to?
Private equity, real estate, infrastructure, private debt, and digital assets like cryptocurrencies.
How significant is the shift toward private markets?
86% of asset owners now allocate to private markets, reflecting a significant strategic shift.
What is driving the growth of private debt?
Private debt offers stable, higher returns and less volatility compared to traditional bonds.
How are digital assets impacting institutional portfolios?
21% of asset owners are investing in digital assets like cryptocurrencies, marking a shift in institutional attitudes.
How are asset owners managing liquidity risks in alternatives?
Asset owners are using strategies to manage capital calls and ensure liquidity without compromising growth.
What role does active management play in alternative investments?
66% of asset owners use active management to maximize returns and navigate complex alternative markets
How are asset owners using technology in their investment strategies?
Asset owners are investing in portfolio analytics and compliance tools to manage alternative investments more effectively.
How are outsourcing and service providers helping asset owners?
Outsourcing helps with administration and operational efficiency, allowing asset owners to focus on core investments.
Conclusion
The findings from Northern Trust’s 2025 study highlight a transformative period in institutional investing. Alternatives are no longer peripheral—they are central to how asset owners build resilient, future-ready portfolios. With 86% of portfolios now including private market assets and growing interest in digital and diversifying strategies, it’s clear that institutions are preparing for a world that is more complex, interconnected, and innovation-driven.
