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Matthias Knab, Opalesque for New Managers: Private markets portfolios can no longer rely on a passive buy-and-hold mindset, according to a new paper from UBS Asset Management's Unified Global Alternatives (UGA) unit. In "Investing, reimagined: Rethinking the building blocks of a portfolio", UBS argues that the question for investors "is no longer whether to allocate, but how to manage these exposures actively and thoughtfully over time." Its answer is the multi-alternative solution.
What multi-alternatives are
Multi-alternative solutions combine different alternative asset classes within a single investable vehicle, typically private equity, private credit, infrastructure, real estate and hedge funds. UBS says that bringing these strategies together under unified governance and risk management, with active management on top, gives investors a broad range of return drivers. Investors also get integrated portfolio construction, diversification across strategies and vintages, and streamlined oversight.
The paper presents the asset classes as complements. Private equity and venture capital offer access to fast-growing private companies, and private credit adds income. Real assets contribute stable cash flows with potential inflation protection, while hedge funds and absolute return strategies aim to perform across market environments and may offer downside protection during periods of stress.
No autopilot
The central argument of the paper is that illiquidity does not make risk disappear. Structural uncertainty, higher volatility and shifting business models mean that "longer capital lock-ups make it even more important to allocate actively and deliberately as market conditions evolve," UBS writes.
Active management in private markets is not about frequent trading, the paper says. It means making ongoing, evidence-based decisions on where capital should be allocated, maintained, overweighted or reduced. Instead of switching whole asset classes on or off, investors should differentiate by strategy, manager quality, capital structure, cycle positioning and liquidity profile. They should also review their conviction regularly against performance drivers, manager resilience, the market environment, leverage, concentration and liquidity terms.
UBS prefers many smaller, well-founded decisions to a few large directional bets, arguing that their cumulative effect may be more valuable "in an environment where uncertainty has become a lasting feature rather than a temporary disruption."
Return sources and resilience
The paper identifies several reasons to hold multi-alternatives:
Alpha and the illiquidity premium: alpha is scarce in public markets but more accessible in alternatives, where inefficiency, complexity and active ownership reward skilled managers. Investors are also compensated for locking up capital.
Inflation protection: infrastructure and real estate revenues can adjust through contractual indexation, regulated pricing or market dynamics. That may make them less vulnerable to inflation shocks than traditional fixed income.
Hedging volatility: hedge funds and absolute return approaches use long/short, relative value and opportunistic strategies to target low correlation and capital preservation.
Smoother returns: periodic valuations and lower liquidity limit the transmission of day-to-day volatility and the risk of forced selling.
Blending liquidity and adding co-investments
UBS highlights the ability to combine open-ended and closed-ended strategies within one portfolio. Open-ended vehicles provide periodic liquidity and flexibility, while closed-ended funds require longer commitments but typically offer higher return potential through active ownership and the capture of illiquidity premia. Combining the two can balance near-term liquidity needs with long-term returns, reduce cash drag and make it easier to recycle capital.
Co-investments are described as a growing building block. Investing directly alongside lead sponsors may improve returns through lower fees and reduced blind-pool risk. It also lets investors tilt exposures toward specific sectors, geographies or themes. Access is the critical factor: UBS says successful programs depend on deep manager relationships, strong origination and robust underwriting. Within an institutional platform, co-investment becomes "a scalable and repeatable return driver rather than an opportunistic add-on."
The trade-offs
The paper is explicit about the risks. Capturing the illiquidity premium means accepting limited flexibility, long lock-ups and a genuinely long-term horizon. Return dispersion in private markets is typically wider than in public markets, which makes manager selection critical. Fees can be higher and structures more intricate, and alternatives demand rigorous due diligence and ongoing monitoring.
A broadening investor base
Private markets were historically the domain of large institutions and ultra-high-net-worth investors, but UBS sees the landscape broadening. Feeder funds, digital subscription processes and lower minimums are opening access to wealth managers and private clients. Institutional capital remains the primary driver, and UBS expects the alternatives market to keep growing structurally, with Asia among the key contributors.
Download the UBS paper here.
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