Financial advisors are still expanding their use of alternative investments, but the leaderboard of asset classes where they want to put new money is flipping fast.
A survey by ISS Market Intelligence this month found nearly half of US advisors (48%) are currently allocating to alternatives, with wirehouse-affiliated advisors continuing to lead adoption across all channels. While overall appetite for the asset class remains firm, the composition of demand has rotated sharply away from private credit, the strategy that dominated inflows for much of the past three years.
Private credit remains the most widely used alternative strategy, with 60% of advisors surveyed reporting existing exposure. But the forward-looking picture has deteriorated markedly. Just 23% of advisors now plan to increase their private credit allocation over the next 12 months, according to ISS Market Intelligence – down from 64% at the end of 2024.
Infrastructure, meanwhile, is running in the opposite direction. Some 73% of advisors surveyed said they expect to raise their infrastructure allocations over the next year, up from 68% in 2024.
The split between the two strategies – once spoken in the same breath in rosy descriptions of core income-generating alternatives – signals that advisors are becoming more discriminating rather than simply pulling back from the broader alts asset class.
The cooling sentiment toward private credit reflects a sequence of negative headlines that have rattled advisor confidence in the space. Bankruptcies among software-focused private borrowers, concerns about the impact of artificial intelligence on private technology companies, and high-profile redemption pressures at several major funds have all contributed to a reassessment. Wealth managers tracking problems in the private credit space are stress-testing portfolios and watching leading indicators such as non-accruals and payment-in-kind utilization with renewed scrutiny.
The redemption pressure itself has surfaced a structural tension that advisors have long acknowledged but rarely been forced to confront in practice: liquidity constraints in semi-liquid fund structures. When investors sought to withdraw capital from certain private credit vehicles earlier this year, the redemption gates commonly used by interval funds and closed-end fund structures limited their ability to pull out.
When asked to identify the primary barriers to expanding their alternatives usage, 65% of advisors cited illiquidity as one of their top three hurdles, and 51% ranked it as the single largest obstacle. Higher fees ranked second, cited by 47% of respondents as a significant barrier.
Despite those liquidity concerns, advisors still expressed the strongest structural preference for semi-liquid vehicles. Thirty-nine percent said they prefer to access alternatives through interval funds, closed-end funds, and business development companies – commonly known as BDCs – compared to 25% who favored traditional limited partnership structures.
The appetite for semi-liquid exposure sits in tension with the fact that it is precisely those structures that have faced the most scrutiny. Alan Hess and Antara Maity, the authors of the ISS Market Intelligence report, noted that developments in private credit have brought existing hurdles to the surface while also intensifying advisors' focus on manager quality and downside protection.
The rotation in US advisor sentiment echoes findings from a January survey of 390 global wealth professionals conducted by Hamilton Lane, a Philadelphia-based global private markets investment management firm, in partnership with Wakefield Research. That survey – which covered respondents across the Americas, Asia, Europe, and the Middle East with a minimum of $150 million in assets under management – found that 86% of wealth professionals planned to increase client allocations to private market strategies this year.
Private credit ranked last among strategies that advisors planned to grow, with just 36% of Hamilton Lane survey respondents saying they intended to raise credit allocations. Thirty-seven percent said they were actually planning to reduce them, making it the only strategy where more respondents said they would dial down rather than ramp up exposure. Infrastructure and venture capital, by contrast, drew among the highest levels of planned growth.
Hamilton Lane identified portfolio optimization as the leading reason advisors planned to increase private market allocations, cited by 59% of respondents, followed by competitive positioning at 48% and client demand at 46%.
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