The New Core: 2026 Alternatives Outlook

2025 saw increased activity across alternative assets, with investors viewing alternatives as core components worthy of greater weightings in portfolios. Investors are adding alternatives to their portfolios to build resilience through diversification.

Here are the key trends we believe will shape the alternatives space this year:

1.        Debt Funding: Greater Dispersion

We expect a widening gap in funding costs. While corporate debt remains expensive in certain sectors, developers in the real estate sector are finding more competitive pricing due to a steady supply of credit.

The Catalyst: With the market having shifted from expecting rate cuts to pricing in further rate increases, funding costs will vary wildly based on asset quality.

• The Takeaway: Because interest rates may stay higher for longer, we focus on loans with "stronger safety nets" (known as covenants) to help protect your invested capital.

2.        Consumer Resilience: Surprising to the Upside

Despite higher interest rates, Australian consumers are showing surprising resilience in paying back their loans.

• The Context: With an unemployment rate trending at 4.1%, we are effectively in a near “full employment” scenario. When more people have jobs, they pay their loans on time, which helps keep your investment returns steady.

• The Result: This stability suggests that consumer finance will likely avoid sharp spikes in arrears or defaults, even as rates remain elevated.

3.        The AUD Ascendance

The strengthening Australian Dollar is reshaping investor sentiment. We are seeing a strategic shift in capital flows, particularly from Asian-based investors.

• The Shift: There is a notable migration of weightings away from USD-denominated products and into other currencies, with AUD-backed products being a primary beneficiary. A stronger Australian Dollar makes local investments more attractive globally, which can provide a 'home-ground advantage' for your portfolio.

4.        Democratisation: Private Markets Open Up

Accessibility is broadening across both wholesale and retail channels, offering investors an unprecedented level of choice in their alternatives allocation.

• The Strategy: With more choice comes more noise. Investors should pivot their focus toward managers with proven, long-term track records, specifically within the private credit space.
  
  

5.        Private Credit: The Anticipated Consolidation

While many expected a wave of consolidation in 2025, the market remained surprisingly fragmented. Given the volume of participants providing credit, we do expect to see some consolidation this year.

• The Shift: The sheer volume of new participants entering the credit space has led to a highly saturated market. We expect several smaller or newer groups to merge this year to achieve the scale necessary to compete with established players.

Regulatory & Competitive Pressure: New government rules and tough competition are making it harder for investment firms to keep their standards high. We expect some of the weaker players to either close down or merge with larger companies.

6.        Real Estate: Demand Meets the Refinancing Wall

The real estate sector in 2026 is defined by a sharp contrast: high demand for new dwellings and significant friction for existing debt.

• Residential Development Boom: Australia’s ongoing housing shortage, compounded by high migration levels and record-low building approvals, is fuelling intense demand for residential development finance. Investors are increasingly targeting gateway cities like Sydney, Melbourne, and Brisbane, where vacancy rates remain at crisis levels.

• The Refinancing Hurdle: Many property projects are about to reach the end of their current loans. Because property values have changed, these borrowers will soon need extra cash to cover the gap between their old loans and their new ones. This creates a unique opening for private lenders to step in and provide that "bridge" funding.

• Structured Capital & Warehouse Facilities: We are seeing a notable shift in how these deals are funded. Traditional banks are becoming more active in providing “warehouse facilities”, securitised lines of credit, to private credit providers. This allows private lenders to offer more structured capital stacks while utilising bank liquidity for senior positions.

Strategy Over Sentiment

While the market is maturing, the outlook for alternative investments remains bright.

By choosing experienced managers with a  track record and who understand global trends, you can navigate shifts with confidence. The opportunity to diversify your portfolio through alternatives remains vast.

Important Information for Investors

Is this right for you? Alternative investments can offer diversification, but they carry different risks compared to bank term deposits or government bonds.  A couple of the bigger ones include:

 Liquidity Risk: It may be more difficult to withdraw your money quickly compared to selling shares.

Capital Risk: There is a risk that you may lose some or all of your invested capital if borrowers default on their loans.

Important Notice

Mi Funds Management Pty Ltd (ABN 45 653 180 744) is a Corporate Authorised Representative of Carnbrea & Co. Ltd (AFSL 233763). Equity Trustees Limited (ABN 46 004 031 298, AFSL 240975) is the Responsible Entity for the Market Intelligence Income Fund ("the Fund"). Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX:EQT). This information has been prepared by Mi Funds Management Pty. Ltd. ACN 653 180 744 to provide you with general information only and does not consider your personal objectives, financial situation, or needs. It is not a substitute for professional advice, and no warranty of accuracy or reliability is provided. Neither Mi Funds Management Pty. Ltd., Equity Trustees nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product. Market Intelligence Income Fund’s Target Market Determination is available at www.miif.com.au. A Target Market Determination is a document which is required to be made available from 5 October 2021.