Weekly Comment

The alternative investments world is growing fast, but so is the confusion around how to approach it. I’ve seen investors jump into alts with ambitious, exotic bets—venture funds, crypto hedge funds, distressed debt specials—before building a core foundation. That’s rarely a good idea.

Just like you don’t start fixed income investing with high-yield EM debt, you shouldn’t start private markets with the alts equivalent of rocket fuel.

The Reality of First Steps

In my experience at both a pension fund and now a family office, the most effective portfolios I’ve seen didn’t begin with what’s flashy. They began with what’s durable.

When we started building our alternatives allocation at the family office, we didn’t begin by chasing alpha through frontier VC. We started with private credit. It was relatively “boring” on the surface—but that was exactly the point.

Too often, “alts” are pitched as the high-octane portion of a portfolio. And while that can be true in later stages, the first goal should be building a base layer that complements traditional exposures with income, resilience, and true diversification.

Education Before Complexity

The knowledge gap in alternatives is real. I’ve seen smart advisors with excellent public market skills struggle with the structural nuances of alts: capital calls, valuation lags, illiquidity profiles, GP selection, waterfall mechanics.

That’s not a knock—these concepts aren’t intuitive unless you’ve worked with them.

That’s why I firmly believe alternative investing should follow the same logic we use in public markets: start with what you can explain clearly to yourself and your stakeholders.

In fixed income, that might be treasuries. In equities, the S&P 500. In alternatives, the equivalents are:

• Private credit with solid underwriting and short to medium-term maturities
• Core/core-plus real estate for income and inflation sensitivity
• Broad-based private equity buyout funds with seasoned managers

These are not “exciting” stories to pitch. But they are strategies that provide yield, stability, and learning opportunities. Importantly, they help the allocator (and the governance body) get familiar with alts mechanics before layering complexity.

A Practical Progression

I think of alts entry as a “training wheels” stage—not because investors are unsophisticated, but because the mechanics and manager dispersion in private markets are different.

Here’s how we think about sequencing exposure:

1. Private Credit – First for predictable income, shorter duration, and underwriting clarity
2. Private Equity – Then for growth and compounding over long cycles
3. Real Assets – Infrastructure and real estate offer inflation hedges and tangible anchors
4. Hedge Funds – For strategic diversification, but only with clarity on strategy fit
5. Venture – The aggressive play
6. Anything and everything else – Special situations, crypto, sector niches

We followed this sequence at the family office and it allowed the IC and broader team to gain confidence with each layer before adding the next. It also avoided the performance and governance headaches that can come from leaping into illiquid, idiosyncratic deals too early.

Alts are powerful, but they’re not magic. Like any asset class, their success in a portfolio depends on how well they’re understood, implemented, and managed. The danger lies in starting with “alpha” before mastering “beta.”

So, before going all-in on that new AI-focused VC strategy or that complex special situations fund, ask: Have we built the right foundation?

Because when the next downturn hits—or when liquidity is needed—boring may just become beautiful.

Source: AWM Internal Analysis

The United States and Israel launched airstrikes in Iran, marking an escalation that heightens global geopolitical tensions. Brent crude and gold moved higher following the attacks. While the conflict could increase short-term volatility, the current consensus is that there will be no prolonged disruption to global energy supply.

Markets will remain focused on the Strait of Hormuz, through which roughly 20% of the world’s oil and gas flows, as well as on Iran’s response.

Analysis

Historically, geopolitical shocks tend to generate short-lived episodes of volatility unless they evolve into broader economic disruptions. At this stage, the central scenario points to a limited impact on global energy supply.

In this environment, maintaining discipline, diversification, and a long-term perspective remains key to managing risks and capturing opportunities.

Historical context

History shows that geopolitical shocks often translate into short-term volatility, but not necessarily into lasting economic damage. The performance of the S&P 500 during previous conflicts in the Gulf countries confirms this pattern.

Source: Bloomberg, Edmond de Rothschild

The U.S. economy grew at a 1.4% annualized rate in the fourth quarter of 2025, below expectations, as the government shutdown weighed on spending and exports. For the full year, growth came in at 2.2%, down from 2.8% in 2024.

Meanwhile, core inflation rose to 3% year over year in December, remaining above the Federal Reserve’s target.

Private demand analysis

Although the headline GDP figure was weak, private demand showed resilience: final sales to private domestic purchasers increased 2.4% and private investment rose 3.8%. The main drag came from federal government spending.

With inflation still elevated, the Fed is likely to maintain a cautious stance before considering further rate cuts.

Implications

At the same time, core inflation reached 3%, still above the Federal Reserve’s target. While the headline growth figure was soft, private demand and investment showed resilience. The overall backdrop suggests the Fed will remain cautious in the months ahead.

Source: Bureau of Economic Analysis, Bloomberg

Understanding the Diversity of Alternatives: From Real Estate to Crypto

One of the most common questions I get from new team members or family principals is deceptively simple: “What exactly do you mean by alternatives?”

It’s a fair question. “Alts” is a broad label that covers everything from core real estate to crypto tokens.

But in my experience—both at a pension fund and now at a family office—how you classify and organize the alt universe shapes how you build, manage, and ultimately compound capital through it.

At AWM, we use a framework that breaks the space into ten categories: private equity, private debt, real estate, infrastructure, venture capital, hedge funds, secondaries, crypto, co-investments, and direct deals. It’s not perfect, but it’s practical—and it helps ensure we stay thoughtful about the role each bucket plays.

Core Categories: Income, Inflation Protection, and Growth

Private equity and venture capital are the long-term growth engines. PE focuses on improving mature businesses, often over 5–10 years, while VC backs early-stage, high-upside companies. Both are illiquid, high-risk, and long-duration—but also the best shot at accessing true alpha from private markets. They don’t generate regular income, and inflation protection is indirect, but they’re crucial for long-run compounding.

Private debt, on the other hand, is more about steady income. Direct lending, real estate credit, and asset-backed strategies can offer attractive yields, especially when structured with floating rates—which can help when inflation and rates are rising. But credit selection and downside protection become even more critical in downturns.

Real estate and infrastructure are classic “real assets.” They tend to shine during inflationary periods because rents, tariffs, and replacement costs rise with prices. Income streams are often contracted and predictable. Infrastructure—especially in regulated utilities, transport, and digital infra—offers particularly bond-like cash flows, but with the added benefit of tangible asset backing.

Strategy-Oriented Exposures and Portfolio Tools

Hedge funds are more about strategy than asset class. Some seek diversification through macro or market-neutral exposures. Others focus on yield via credit or arbitrage. In my pension fund days, we leaned on certain macro and quant managers for downside protection when rates and equities were both challenged. But dispersion is wide, and fees can erode value quickly without tight underwriting.

Secondaries are a portfolio construction tool. They offer accelerated deployment, discounted entry, and vintage diversification—especially helpful when building a new program. They’re not a direct inflation hedge, but they provide flexibility and cash flow smoothing, which helps in overall planning.

Co-investments and direct deals are where concentrated views meet deep alignment. In our framework, they sit on top of a primary-led core, and we only pursue them after years of building GP relationships and in-house diligence capabilities. They can enhance returns, especially when done with low fees and strong control, but they require more time, judgment, and risk management.

Emerging Exposures and the Role of Crypto

Cryptocurrencies are firmly in the alt category now. We treat crypto as a satellite position—small, high risk, and with a very different return driver. Bitcoin may be “digital gold” in theory, but in practice its behavior has varied across regimes. For us, crypto is less about inflation hedging and more about optionality on new infrastructure and asset paradigms. It’s not core, but it’s worth understanding.

Pulling It All Together

This classification helps us design portfolios where:

• Core real assets and private credit deliver income and inflation resilience
• Growth strategies like PE, VC, and directs aim for long-term capital appreciation
• Tools like secondaries and co-invests improve pacing and net returns
• Satellites like hedge funds and crypto add diversification and idiosyncratic upside

The Takeaway

In alternatives, how you organize matters almost as much as what you invest in. A clear, working taxonomy makes better decisions easier: where to lean in, where to stay cautious, and how to sequence capability development. That’s what turns a collection of deals into a real portfolio.

Source: AWM Internal Analysis

The nomination of Kevin Warsh as the next Chair of the Federal Reserve marks an inflection point for U.S. monetary policy. While he has recently signaled a more pro–lower rates stance, his track record points to a pragmatic, data-dependent approach.

Economic context

With a softening labor market, inflation still above target, and a politically sensitive backdrop, the Fed faces complex decisions. Current signals suggest rate cuts will continue gradually, guided more by economic fundamentals than political pressure.

Market implications

A change in Fed leadership does not automatically imply a loss of independence. Even with a potentially more flexible stance, investors should maintain a long-term investment mindset focused on value creation across market cycles.

Volatility is likely to remain a relevant factor if markets perceive deviations from the Fed’s traditional mandate. This is an environment that calls for careful analysis and a long-term perspective from investors.

Source: Capital Group, Brookings, Federal Reserve

Although Bitcoin was pioneering and revolutionary, its role as the foundation of a global financial system reveals key limitations that merit careful consideration.

Structural limitations

Bitcoin by its nature is limited to only 21 million coins. If we were able to mine them faster (quantum computing, I’m looking at you) or we run out (2150’s according to latest estimates), we will experience a crash akin to the silver boom of the 1850’s or the gold scarcity of the early 1900’s. This is giving away a powerful stabilization tool, i.e. monetary policy, to the quickness of mining. Relying on an external force to underpin global stability ends in catastrophe.

While the narrative of decentralized freedom of the individual against corrupt forces trying to control the world is a great story, life is more nuanced than that and underpinning the stability of the world’s economy to the mining and availability of bitcoin seems foolhardy to me. If bitcoin is cash and cash is bitcoin, any loss of bitcoin will mean a permanent loss of cash. So if someone were to mistakenly discard a hard drive, all of us collectively would have to live with less money. That is a problem, specially given our expansionary economies.

This is only highlighting a narrow issue. You have to also take into account the externalities of such a system, one of them being energy consumption in a world that is now hungrier than ever before for power, and many others which are outside the scope of this post.

The real future of cryptocurrencies

I believe in a not too distant future we will use the full benefits of crypto, decentralized ledgers, tokenization, smart contracts, and frictionless flows of capital. But I don’t think we will do it with bitcoin.

All throughout history humanity has tended to favour standardization and liquidity as they are more efficient over any other concerns when dealing with our methods of exchange for goods and services. The fungibility of gold nuggets (and its wide availability spread almost evenly worldwide) made it outcompete barter. These nuggets which in turn were displaced with coins, which were displaced by notes backed with that gold, which were displaced by debt backed by those notes backed by gold until we got to where we are today, where the exchange of services is backed by debt underpinned in trust.

To many people, the underpinning of the global economy in trust is a crazy idea born out of the lunacy derived from the Bretton Woods system, and it is true that our current economic model was partially developed at that conference. However, the idea is much older than that—about 1700 years old in fact.

Is it true that fiat money is backed by nothing? Correct, as its backing is not a tangible thing but an intangible one: trust. The world economy is fuelled by debt, which is a promise of deferred consumption in exchange for a future greater payment.

The real revolution

The big change I see derived from the crypto breakthrough is that trust can now be decentralized and assigned on an individual basis to anything and everyone around us. So in the future I could buy a car A using Z crypto which the dealer can convert to coin Y directly without having to rely on intermediaries or governments. This system will be backed both by the asset itself and the underlying expansionary coins we develop, which will be a mix of trust and asset backed.

Ironically, this would make the whole system pretty much a barter-based economy but with the fungibility, standardization, and liquidity of our current system.

In my opinion, crypto will be the foundation of our future method of exchange of goods and services, but it won’t be bitcoin.

Would love to hear your thoughts—why you think I’m right or why you think I’m wrong.

Source: Daniel Sánchez

The Federal Reserve kept its benchmark interest rate unchanged at 3.5%–3.75%, signaling a more optimistic view of the U.S. economy. The statement highlighted solid economic growth and early signs of stabilization in the unemployment rate, reducing the urgency for near-term rate cuts. 

While two members voted in favor of a reduction, the majority opted for caution amid persistent inflation pressures and a resilient labor market. The decision reinforces the Fed’s data-dependent approach to monetary policy. 

Market Implications 

Policymakers are balancing inflation control with labor market stability, avoiding premature easing. For markets, this points to a near-term period of stable rates, with the possibility of renewed cuts later in the year if inflation continues to cool. 

The tone of the statement suggests less urgency for near-term rate cuts, as policymakers continue to monitor inflation and employment trends. Key takeaway: caution, data dependence, and the potential for policy adjustments later in 2026 if conditions allow. 

Source: JP Morgan.

The peace dividend many of us were born into has expired.

We’re entering a new geopolitical reality—one where defense investment can no longer be ignored, even in the most ethically constrained portfolios. Whether you’re in a public pension, a family office, or a university endowment, the relevance of defense—both from a return and a risk management perspective—is rising fast. The question is no longer if you should think about defense exposure, but how you approach it.

Context: A New Strategic Normal

In my early days working at a pension fund, defense exposure was marginal—both in scale and scrutiny. But at Axxets today, that conversation is shifting.

The war in Ukraine, tensions in the South China Sea, and increasing cyber threats have created a multipolar environment with fragmented alliances and local conflicts. These aren’t isolated skirmishes—they represent a structural shift. Defense spending is no longer cyclical; it’s foundational.

This shift is being echoed across markets:

• Anduril in the U.S. is pushing forward dual-use defense tech that sits at the edge of AI and autonomy.
• Rheinmetall is playing a growing role as Europe seeks defense sovereignty.
• Turkey’s defense industry has become a powerhouse in drone and missile development.
• Even Nigeria is stepping up as ECOWAS’s security guarantor—something unthinkable a decade ago.

This isn’t just about legacy players like Lockheed or Raytheon anymore. The industry is evolving—and fast.

Insight #1: Defense as Strategic Infrastructure

One lesson we’ve learned is that defense is increasingly analogous to energy or cybersecurity—a non-optional sector underpinning state functionality. For many regions, it’s also an employment engine and a source of technology spillovers.

While traditional defense primes are still important, we’re seeing compelling innovation at the intersection of software, AI, and autonomy. These startups—and the venture capital flowing into them—are modernizing the defense sector with scalable, modular solutions that can support both military and civilian uses.

For allocators, this means the entry points are no longer limited to defense ETFs or legacy primes. Private capital is playing an increasingly important role in shaping the industry’s next chapter.

Insight #2: Valuations and Volatility Are Real

The reality is more nuanced than “defense is back.” High valuations—often pushing P/E ratios near 40x—aren’t uncommon. Much like in AI, investors must be selective and realistic about what’s already priced in.

Add to that policy risk and export restrictions, and you’ve got a highly reactive asset class. For example, a shift in U.S. foreign policy can cancel contracts overnight.

In practice, this means we focus on:

• Dual-use technologies with civilian applications.
• Localized players with government backing and cost advantages.
• Suppliers in NATO-adjacent markets adapting to new procurement frameworks.

Being thoughtful here isn’t just ethical—it’s also practical portfolio construction.

Insight #3: Ethics, Exposure, and the Investment Dilemma

At Axxets, we’ve had internal debates on how to incorporate defense. It’s a conversation that balances fiduciary responsibility with family values.

Defense investing isn’t binary.

It can include supply chain tech, cybersecurity, drone navigation, AI systems, and encrypted communication platforms—each sitting on a spectrum from commercial to military use.

That said, not investing in the sector is also a choice—with its own trade-offs. Ignoring the conversation entirely risks missing exposure to a sector reshaping global power dynamics and, by extension, markets.

Final Thought: Don’t Skip the Conversation

Defense is no longer a niche or optional allocation. Whether your conclusion is to invest or to consciously exclude it on ethical grounds, the conversation must be had.

Because in a world where geopolitics directly shapes returns, sitting on the sidelines is itself a decision—one that should be made thoughtfully, not passively.

What role does defense play in your portfolio today? Is it time to revisit that assumption?

Source: STATISTA

U.S. core inflation came in softer than expected in December, reinforcing the view that underlying price pressures are gradually easing. Core CPI rose just 0.2% month over month and 2.6% year over year, both below consensus, pointing to a continued normalization of inflation dynamics. Still, headline inflation remains at 2.7%, meaning price stability has not yet been fully restored.

What’s holding the Fed back is the composition of inflation. Housing costs, more than a third of CPI, continue to rise at an elevated pace, while services, recreation, and airfares remain sticky. Even as some goods show deflation, the Fed is still waiting for economic data and assessing the effects of previous cuts, limiting the case for near-term rate cuts. Markets now expect the Fed to remain on hold at least through the first half of the year.

Market Implications

• It reinforces the scenario of inflation slowing down, but too slowly to justify immediate interest rate cuts.
• Risks in the housing and services sectors reduce the likelihood of an accelerated monetary stimulus cycle.
• Makes upcoming inflation and labor data critical for market direction.

Source: CNBC with information from U.S. Bureau of Labor Statistics

The Federal Reserve delivered its third consecutive rate cut, lowering the federal funds rate to a range of 3.50%–3.75%. While the move was widely anticipated, the accompanying statement revealed rising uncertainty about the policy path ahead. The committee showed an unusual split between members focused on labor-market weakness and those still concerned about persistent inflation pressures.

The updated dot plot, which reflects policymakers’ rate expectations, pointed to just one additional cut in 2026 and another in 2027. Although the projected path remained unchanged, it underscored diverging views within the committee regarding the appropriate level of interest rates over the medium term.

The latest rate cut confirms that the Fed maintains an accommodative bias, but the internal divisions suggest that the pace of future adjustments is likely to slow. In this environment, markets are expected to remain highly sensitive to incoming employment, inflation, and monetary policy expectation data throughout 2026.

Source: JP Morgan