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Many advisors are increasing allocations in client portfolios to alternative assets to diversify their portfolios, seek uncorrelated returns and dampen the volatility of public markets. Alternative strategies can enhance portfolio resilience, but understanding the environment is more important than ever in a fast-changing world.

As advisors continue to rethink traditional portfolio construction, keep an eye on four key themes in the year ahead, says Ash Lawrence, head of AGF Capital Partners in Toronto.

1. Continued volatility and concentration in public markets

Public markets performed well in 2025 despite ongoing uncertainty driven by the Trump administration’s trade policies and worries of an artificial intelligence-related stock bubble. That volatility is unlikely to fade in 2026, Mr. Lawrence notes.

“We see an inflation question mark,” he says, pointing to fiscal and trade policies potentially pushing prices higher.

He adds that, “Everyone generally agrees valuations in public equities markets are relatively full – to put it lightly. That fact, coupled with the concentration of both equity returns and GDP growth in a small handful of large technology and AI companies, adds to 2026 risk factors.”

While the coming year may not be a repeat of 2022, when public equities and fixed income were crushed at the same time, the aforementioned risks could still put pressure on stocks and bonds.

Exposure to alternatives – notably in certain private markets or liquid alternative strategies – can potentially mitigate the impact of that downside volatility, Mr. Lawrence says.

2. Private credit’s divergence

Private credit has been a top-performing segment within alternatives recently. Yet, that strong growth presents future challenges with “much more competition for deals,” he says. That has led to spread compression and covenant relaxation in certain segments of the private credit market. In particular, larger deals in the private debt sector may not compensate investors sufficiently in 2026 relative to yields from non-investment-grade public debt. The continued influx of retail and high net worth capital will only increase the competitive dynamic for deals in the U.S. large cap space.

“You are starting to see a tick up in the large-cap space of defaults or loan amendments for companies with some cash flow stress,” Mr. Lawrence says.

Looking beyond this, one geography of interest this year is Canada, Mr. Lawrence says. “The market remains attractive relative to the U.S., with private debt deals generally yielding 100 to 200 basis points more than transactions south of the border. We have a less crowded lender universe, and a corporate environment where companies typically operate with more conservative leverage levels.”

He suggests considering the Canadian mid-market and lower mid-market, providing funding to family-owned businesses that need capital for growth, for example. “It’s an attractive space where you can still get good alpha generation potential with better spreads and strong financial covenants.”

3. The end of a logjam in private equity

“Private equity has had a tough three years,” Mr. Lawrence acknowledges. The investment segment has been frozen of late, following the rapid rise in interest rates, creating a “logjam” of investments waiting to be sold.

Both private equity firms looking to sell and buyers have waited for conditions to stabilize and provide better clarity on valuations before moving on transactions, Mr. Lawrence says.

Yet, private equity now seems to have “green shoots” emerging with “some normalcy returning,” he says, which could gain momentum through 2026. If increasing transactions volumes are an indication of changing sentiments, then that once wide gap between buyers and sellers appears to be narrowing.

Mr. Lawrence notes a thawing of the IPO market, another sign of potential comfort around valuations. Should this hold through the new year, private equity could have more upside ahead. That’s especially true if the trade picture clears and interest rates in the U.S. come down, even just by 25 or 50 basis points further.

Again, the mid-market in the U.S. and Canada is an attractive opportunity because of less competition, broader deployment options and more paths to create value.

“Many are family-run companies that need capital to grow and are increasingly willing to do private equity deals,” Mr. Lawrence says.

4. Matching liquidity to investor needs

The ongoing challenge for non-institutional investors accessing private markets remains liquidity. Despite the growing availability of more liquid fund structures, Mr. Lawrence says private assets are generally mismatched for these funds, which provide daily unit redemptions.

Daily liquid vehicles are more suitable for certain alternative approaches, such as absolute return strategies. These strategies are designed to provide alpha generation with reduced correlations and volatility, through portfolio construction and hedging.

To access private markets as a Canadian, offering memorandum funds are a growing option for mass affluent investors, with more frequent redemption opportunities.

“But like any other market, private markets will have downturns,” Mr. Lawrence says. “When this occurs, liquidity is at its lowest. Unfortunately, this is when there is typically a larger move by retail investors to want more liquidity, hence the mismatch.”

He says this underscores the need for investors to have solid understandings of the long-term nature of these assets and be conscious of their liquidity profile.

Despite some of these near-term challenges, Mr. Lawrence says, “ongoing demand and innovation in the industry signal a continued expansion in private markets, and we expect this to build in the years ahead.”

Advertising feature produced by Globe Content Studio with AFG Capital Partners. The Globe’s editorial department was not involved.

About AGF Capital Partners

AGF Capital Partners is AGF’s multi-boutique alternatives business with diverse capabilities across both private assets and alternative strategies. Clients can benefit from the specialized investment expertise of Affiliate Managers combined with the organizational support and breadth of resources of AGF Management Limited (AGF). Together, AGF Capital Partners Affiliate Managers’ Kensington Capital Partners Limited, New Holland Capital, LLC and SAF Group have approximately C$14 billion in assets under management. The term ‘Affiliate Manager’ refers to any partner regardless of relationship structures or revenue sharing agreements. The form of AGF’s structured partnership interests in Affiliate Managers differs from Affiliate Manager to Affiliate Manager. The structure of the relationship with a particular Affiliate Manager, or the revenue that AGF agrees to share in, may change. Affiliate Managers only provide investment advisory services or offer products in the jurisdiction where such firm, individuals and/or product is registered or authorized to provide such services. Products in Canada are distributed through registered dealers on a private placement basis, including by AGF Capital Partners’ affiliate, AGF Investments Inc.

Disclosures:

The views expressed in this article are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

This article is solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such.

This document may contain forward-looking information that reflects our current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein.

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