Key Takeaways
- • Hedge funds delivered positive returns across all major strategies in 2025, with equity long/short, merger arbitrage, discretionary macro, and multi-strategy funds proving most resilient during periods of heightened volatility while complementing traditional 60/40 portfolio performance.
- • Private equity deal flow increased 14.5% through September 2025 (per PitchBook data), with exit activity accelerating following central bank monetary loosening, though overall PE returns remained muted but positive.
- • Private credit direct lending continued to generate strong yields, averaging close to 4.5% in USD during the first half of 2025 (per Cliffwater Direct Lending Index), with low corporate default rates and robust fundraising activity despite isolated bankruptcies.
- • Swiss investors maintained positive exposure to international alternative investments throughout 2025 despite zero interest rates, currency headwinds, and foreign uncertainty, using these allocations to enhance portfolio diversification and cushion market fluctuations.
- • UBS maintains a constructive outlook for alternative investments in 2026, positioning hedge funds, private equity, private credit, and infrastructure as critical components for building resilient portfolios in a challenging macro environment.
Summary
Alternative investments delivered meaningful portfolio benefits for Swiss investors throughout 2025, a year characterized by zero interest rates, currency strength, and geopolitical uncertainty. Rather than concentrating capital domestically, institutional investors who maintained international allocations to hedge funds, private equity, private credit, and infrastructure gained critical diversification benefits and downside protection. According to UBS's outlook, this diversification benefit is expected to persist through 2026, supporting continued allocation to alternative asset classes.
Hedge fund performance demonstrated particular resilience in 2025. All major hedge fund strategies generated positive returns, with preferred strategies—equity long/short funds, merger arbitrage, discretionary macro, and multi-strategy funds—proving especially valuable during volatile market periods. These strategies provided active risk management and positive absolute returns that complemented traditional equity market gains, allowing 60/40 portfolios to benefit from both the equity rally and hedge fund-driven stability.
Private equity markets showed gradual recovery signs as monetary conditions eased. Deal flow activity, a key measure of investment opportunity availability, increased 14.5% through September 2025 according to PitchBook data. Exit activity also accelerated as central banks loosened monetary policy, though overall PE returns remained modest. Private credit proved more compelling, with direct lending strategies in US dollars averaging approximately 4.5% returns in the first half of 2025, based on the Cliffwater Direct Lending Index. Despite isolated corporate bankruptcies generating headlines, default rates remained subdued and fundraising remained strong across the sector.
UBS concludes that alternative investments should maintain a central role in Swiss portfolio construction during 2026. The combination of structural challenges—persistent low rates, currency strength, and macro uncertainty—alongside demonstrated resilience and return generation across hedge funds, private equity, private credit, and infrastructure strategies supports continued allocation to these asset classes as core components of institutional investment programs.
Hedge fund performance demonstrated particular resilience in 2025. All major hedge fund strategies generated positive returns, with preferred strategies—equity long/short funds, merger arbitrage, discretionary macro, and multi-strategy funds—proving especially valuable during volatile market periods. These strategies provided active risk management and positive absolute returns that complemented traditional equity market gains, allowing 60/40 portfolios to benefit from both the equity rally and hedge fund-driven stability.
Private equity markets showed gradual recovery signs as monetary conditions eased. Deal flow activity, a key measure of investment opportunity availability, increased 14.5% through September 2025 according to PitchBook data. Exit activity also accelerated as central banks loosened monetary policy, though overall PE returns remained modest. Private credit proved more compelling, with direct lending strategies in US dollars averaging approximately 4.5% returns in the first half of 2025, based on the Cliffwater Direct Lending Index. Despite isolated corporate bankruptcies generating headlines, default rates remained subdued and fundraising remained strong across the sector.
UBS concludes that alternative investments should maintain a central role in Swiss portfolio construction during 2026. The combination of structural challenges—persistent low rates, currency strength, and macro uncertainty—alongside demonstrated resilience and return generation across hedge funds, private equity, private credit, and infrastructure strategies supports continued allocation to these asset classes as core components of institutional investment programs.
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