INTRODUCTION Contributed by: Elizabeth Shea Fries, Sidley Austin LLP
A Global Overview of Alternative Funds Alternative funds – private equity, hedge funds, pri - vate credit, venture capital, real estate, infrastructure and impact‑oriented vehicles – increasingly play a central role in global investing. 2025 is shaping up to be a good year for alternative funds. While interest rates have remained on the high side, the prospect of future cuts brings a more favourable environment for deal-making and higher asset valuations. A focus on decreasing regulatory burdens, at least in the United States, has also stimulated deal-making. As exits become more feasible, more capital flows into alter - native funds. The public markets are becoming more concentrated in a handful of well-known companies, which reduces diversification and can increase volatility. As a result, investors continue to favour the prospect of diver - sification, long-term value, and exposure to private investments and strategies available through alterna - tive funds. Institutional investors, high net worth inves - tors and global regulators have a growing interest in hybrid/evergreen/semi-liquid funds as a means to such opportunities but are also mindful of the risks. Meanwhile, technology is advancing with rapid devel - opments in artificial intelligence (AI), tokenisation, dig - itisation, sustainability and other areas. Regulators around the world are striving to stay ahead of these trends, through both the development of new regula - tion and the pursuit of enforcement matters. These trends continue to spur sponsors and inves - tors in alternative investments to be nimbler and more creative, but also more resilient, and they require (i) an increased focus on a strong compliance culture, (ii) careful attention to tax and legal structuring, (iii) engagement on valuation and liquidity issues, and (iv) clear communication and transparency with investors and regulators. For legal advisers in particular, the task is increasingly complex. Global economic and political context The theme of 2024 was a gradual focus on interest rate cuts, leading to a welcome reversal of the trend of higher costs of capital/financing in recent years and hoping for a thaw in the market for exits. In 2025, the thaw did materialise, and at the same time geopolitical
risks and trends have morphed, so they are not mere - ly influencing markets but are causing a realignment of the global power structure and global economy. Globalisation and free trade is giving way to tariffs, trade disputes, nationalism, conflict and competition between nations. In the meantime, we are experienc - ing uncertainty and instability which require rethinking traditional investment methodologies and products. It is no surprise, then, that the hottest topics include AI, digitisation/tokenisation, and retailisation of alterna - tive funds. As these hot topics emerge, global regulators are striving to keep up, focusing more on compliance and enforcement as deregulation takes effect Neverthe - less, potential deregulation in the USA may help shift to create new opportunities. We have already seen the United States Securities and Exchange Commis - sion (SEC) staff provide guidance facilitating private placements with large minimum investments instead of requiring burdensome verification of an investor’s financial position and loosen a prior staff policy limit - ing certain registered funds’ ability to invest in private funds. Also, we have an Executive Order directing the exploration of the use of alternative investments in retirement accounts and proposed legislation (not for the first time) to open up the standard for being an “accredited investor” eligible to participate in pri - vate placements. In the UK and EU, there is also a re- examination at the legislative level of the “professional investor” criteria to allow greater access for high net worth or mass affluent investors. In the meantime, as in the USA, certain sponsors are also using retail products such as the Luxembourg Part II UCI Fund or European long-term investment fund (ELTIF). In APAC, sponsors are facing increased scrutiny of their mar - keting practices for private offerings due to the focus on expanding the universe of investors and increasing investor demand for these products. Regulators will need to get ahead of these trends to help establish appropriate but not overly burdensome guardrails as alternative investments and strategies become more broadly available. Several bright spots The rebound in the private equity market has allowed funds to deploy their “dry powder”, particularly in growth-oriented or undervalued assets. Sponsors in
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