New York morning trade, we are looking at red across the board for the major US stock averages and alternative assets or alts or any asset class outside the traditional trio of public stocks, bonds, and cash and investors do add them to portfolios because they oftentimes react differently to economic events compared to say, stocks and bonds.
Meanwhile, private. has been in hot demand ahead of some of the most anticipated IPOs and private equity as well as credit can offer higher returns than traditional markets at the cost of liquidity.
Recently JPMorgan Chase CEO Jamie Dimon saying he wouldn't buy broad equity index funds or long term US government debt at these levels perhaps that could lead a lend credence to the role of all.
Well joining me this morning to weigh in is Shana or founder and CEO of Capital Management.
Shayna, good morning.
Thank you so much for joining us.
Well, what a morning.
A lot of headlines crossing this morning regarding the geopolitical situation.
What we're seeing in bond yields as well as oil prices climbing.
So what role do alternatives actually have in a portfolio right now?
I think the biggest role alternatives have in portfolios right now is to help kind of manage volatility.
Really, you know, a lot of people inherently think of alternatives as a way to add additional sources of alpha, and that certainly is a reason to hold alternatives.
But really the real role that they play in portfolios is about risk mitigation.
Really about bringing in uncorrelated asset classes that can help diversify even more and in situations like we're experiencing now, bonds and stocks tend to be more correlated than we would necessarily want, so bringing in things like managed futures, long short equity, equity market neutral, things of that. are really the diverse fires.
It's not the private equity and private credit.
I like to say that those things are still equity and they're still credit.
They're just in a different wrapper, and you do get some sort of premium for the illiquidity, but they still actually behave like equity and credit.
The diversifiers are really and these things around the edges that don't get talked about very much. and Shannon, you mentioned a key word there, and that is volatility.
Today we are seeing plenty of that and as a result we are looking at the VIX higher by a double digit percentage point.
But when it comes to what we're seeing in terms of alternatives, we know that the age of the 60-40 portfolio is long gone here.
So what does democratization of Als actually look like?
Well, what it looks like is kind of like passive if you think about it.
So the average investor can actually access alternatives today, which is something that didn't exist even 10 years ago.
Really, the rise of liquid alternatives happened kind of during and after the financial crisis, so they weren't really adopted in a meaningful way because who wanted to own alternatives when the market was going straight up.
But the products exist with changes in some of the.
40 Act rules.
Now they're available in ETFs.
We also have interval funds now, so things that are inherently less liquid are accessible to the average investor.
And so those types of things are going to add diversification to the portfolio.
However, I do think it's really important to point out that there are some limitations.
The more liquid and the more accessible ATs become, they do lose some of that excess return that you might. inherently associate with alternatives, but I, I, I like this.
It's not really why you would own alternatives.
You really would do it as a way to further diversify with uncorrelated return streams in an environment where we're seeing just the behavior of stocks and bonds different than it was in the past, and I don't think it's much different than we.
Had in the early 2000s, late 1990s when fixed income funds weren't really a thing until then, until after the tech bubble burst, and this is just the continuing evolution of how we manage portfolios today.
And while I have you here, I do want to get your take on private credit.
There have been a lot of jitters in 2026 about this, so take us through the growth as well as what we've seen so far in 2026 and whether you think there's potential opportunity here.
I do think there's potential opportunity.
So private credit is a relatively new asset class.
It kind of came into its own after the financial crisis because banks stopped lending in the manner that they were prior to the financial crisis.
So it was much more difficult to access capital, particularly if you're a smaller business or a startup, something that's not established enough to be able to issue debt into the markets.
So.
Private credit became the capital resource for a lot of businesses, and it has grown as a result.
In fact, I would argue that most businesses are tapping private credit markets more than they're tapping public credit markets.
With that in mind, a lot of what has happened in private credit has been at the highest, largest debt.
Uh, sizes, so, um, it's a much smaller pool of opportunity, but there's the most amount of assets chasing those opportunities.
So I like to say when you have a lot of money chasing very few deal opportunities, it means that you have to compete on terms, not necessarily on, uh, you know, the credits alone, and so that led to.
Some lax due diligence and the competitive landscape really changed.
The companies that are tapping $100 million dollar loans, that's what was going after for some of these big firms, and those firms also can access traditional bank markets, traditional credit markets.
The opportunity really is what we call the lower middle market, and that can be loan sizes anywhere.
Between 25 million and under, um, that actually a really important component to capital, uh, access today so I would say that that is where the opportunity really lies today.
That is where I think investors should be paying attention, um, and really trying to find the lower middle market opportunities because I think that they're plentiful.
And finally, Shana, before I let you go, in New York morning trade, we're continuing to monitor the AI trade and what's happening below the surface and in the ecosystem, and we're coming off earnings out from Alphabet, of course we'll continue to watch the other hyper scalers report as we head further into the earnings season.
But how is artificial intelligence as well as this technology impacting due diligence as well as allocation when it comes to.
Well, where you really see AI as an allocation is more in the venture capital space because in the startup ecosystem AI is a major, major area of interest, but I think the most interesting opportunities lie in the infrastructure plays with AI, not necessarily the hyperscalers or the folks that are creating the AI tools that are being implemented broadly speaking, it's the folks that make that happen.
So in terms of where the opportunity lies in alt space.
It's really that venture capital side, but that's also obviously you know there's risk there.
You've got to get that right.
And just like in the tech bubble, people are throwing money at anything and hoping that something sticks.
So I'd like to say in the private markets you definitely want to be careful.
There's so much interest and that's really where all the money is flowing.
I think there's other opportunities that are worth taking a look at outside of that space, but it's hard to ignore the fact that this is going to be the next.
Big thing that really transforms economic conditions worldwide and I think really it's about the monetization of these things and we haven't seen true monetization of the products just yet but I think it's coming.
I know at Bonnerin we use cloud cowork and cloud code and everything for our software platform, so we use it.
We also use it in our due diligence as well because there's, you know, we, we get these due diligence questionnaires and oftentimes we put.
Together some summary reports.
AI is really good at combing through and picking out the important stuff, so there's different ways that we use it.
I don't know necessarily that I'm a huge fan of, you know, the folks that are putting product out there that incorporates AI because it really hasn't been true monetization, but the infrastructure plays anything having to do with the buildup that's necessary of the data centers and things of that nature, I think is really interesting and in the alternative space that's really.
The venture capital side that you see that.
Well, Shayna, we will have to leave it there for today, but thank you so much for joining us and thank you so much for sharing all of your insights.
Thank you.
