Mark Sherwood | February 20 , 2026
2025 saw increased activity across alternative assets, with investors viewing alternatives as core components worthy of greater weightings in portfolios. Participation consistently rose, whilst deal flows increased in competition as an increasing volume of capital became available to bid on assets.
Here are the key trends we believe will shape the alternatives space this year:
We expect a widening gap in funding costs. While corporate debt remains expensive in certain sectors, real estate-related assets are seeing favourable pricing for developers due to ample credit supply.
The Catalyst: With the market pivoting from expecting rate cuts to pricing in potential further increases following recent inflation data, funding costs will vary wildly based on asset quality.
The Takeaway: In cash-flow-backed business lending, covenant quality is becoming a primary differentiator. Due diligence is increasingly important and the ability to reject a trade due when covenants fail investment criteria.
Despite the headwind of higher interest rates, consumer finance serviceability continues to show unexpected strength, a theme that carried over from 2025.
The Context: With an unemployment rate trending at 4.1%, we are effectively in a “full employment” scenario.
The Result: This stability suggests that consumer finance will likely avoid sharp spikes in arrears or defaults, even as rates remain elevated.
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. This bolstered local currency is acting as a magnet for international confidence.
Accessibility is broadening across both wholesale and retail channels, offering investors an unprecedented level of choice in their alternatives allocation.
The Strategy: With more options comes more noise. Investors should pivot their focus toward managers with proven, long-term track records, specifically within the private credit space.
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: Increasing regulatory scrutiny and the sheer difficulty of maintaining high underwriting standards in a competitive environment will likely push less-resilient firms toward exits or mergers.
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: A significant “refinancing wall” is approaching for deals with existing capitalised financing. As these projects reach maturity, borrowers may find that previous valuations no longer hold, requiring them to negotiate higher loan-to-valuation (LVR) ratios or seek additional “gap” capital to bridge the difference.
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.
The 2026 landscape is one of maturity. While the “weight of money” continues to drive the sector, the macro environment, defined by sticky inflation and currency shifts, demands a more considered approach.
Investors who prioritise rigorous covenant analysis, keep a keen eye on currency dynamics, and partner with seasoned managers will be best positioned. The opportunity in alternatives remains vast.
