The Bid. Ep 254. Alternative Investing: Finding Diversification in Volatile AI-driven Markets
Web title: Alternative Investing for Diversification in Volatile AI-Driven Markets
Full episode Description (Apple, Spotify):
Alternative investing is moving from a niche allocation to a core portfolio conversation. As volatility returns, interest rates reset higher, AI accelerates capital spending, and fiscal deficits expand, investors are reassessing what diversification really means. In a world where stocks and bonds can move together and macro forces dominate markets, traditional portfolio frameworks are under pressure.
In this episode of The Bid, host Oscar Pulido revisits conversations with investors and strategists across BlackRock to explore why alternative investing is gaining renewed attention. From private equity, private credit, and infrastructure to hedge fund strategies, gold, and digital assets, the episode examines how alternatives are being used to broaden return drivers and navigate today’s regime shift in capital markets.
The discussion highlights how structural megaforces — including AI buildout, geopolitical fragmentation, and fiscal expansion — are reshaping opportunity sets. Private markets offer exposure to long-duration capital themes and potential illiquidity premia, though with liquidity tradeoffs and manager dispersion. Hedge fund strategies aim to capture rising market dispersion through flexible long/short and systematic approaches. Infrastructure sits at the center of AI-driven energy demand and essential services. Meanwhile, gold and digital assets are increasingly viewed as monetary alternatives with distinct risk-return profiles. As portfolio construction evolves beyond the traditional 60/40 model, alternative investing is becoming part of a broader shift toward expanding diversification tools in volatile markets.
Key insights from this episode:
Why traditional diversification has become harder in AI-driven markets
How private markets have grown — and what tradeoffs they introduce
Where infrastructure investing connects to AI and energy demand
How hedge fund strategies seek lower-correlation return streams
Why dispersion and volatility expand the opportunity set for alternatives
How gold and digital assets fit into the evolving diversification toolkit
Keywords: Alternative investing explained, private equity, private credit, hedge fund strategies, infrastructure investing, AI capital spending, portfolio diversification, 60/40 portfolio shift, digital assets, bitcoin investing, gold investing, capital markets outlook
Written Disclosures In Episode Description:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to any company or investment strategy mentioned is for illustrative purposes only and not investment advice. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.
<<TRANSCRIPT>>
<<INTRO MUSIC>>
Oscar Pulido: If you’ve been following markets over the last few years, you’ve probably felt the shift. Volatility has returned. Inflation has moved in waves. Interest rates are no longer pinned near zero. Artificial intelligence has moved from boardroom discussion to real-world capital spending. Governments are running larger deficits. Corporations are taking on more leverage.
It’s not just one change. It’s a regime shift. And in the middle of that shift, investors are asking a very practical question: What does a diversified portfolio look like now?
For decades, the answer felt straightforward. A traditional 60/40 portfolio — 60 percent stocks, 40 percent bonds — provided growth and ballast. Stocks for expansion. Bonds for diversification. But when stocks and bonds move together or when macro forces dominate markets, diversification can feel harder to find.
Welcome to The Bid, where we break down what’s happening in the markets and explore the forces changing the economy and finance. I’m Oscar Pulido.
<<MUSIC ENDS>>
Today we’re stepping back and looking at a category that’s getting renewed attention in this environment: alternative investments.
Alternative investments are a broad category. Some of these assets may be more liquid in nature, such as some hedge fund strategies, gold or digital assets, while others are more illiquid, things like private equity or private credit. In this episode we’re going to revisit some of the conversations we’ve had on The Bid over the past year and look further into why alternatives are increasingly central to portfolio construction. And to understand why they matter now, we need to start with the macro backdrop…
Oscar Pulido: In the 2026 Global Outlook, Jean Boivin, Head of the BlackRock Investment Institute, describes a market environment shaped by powerful structural forces — what BII has been calling mega forces — that are concentrated and difficult to diversify away from. And in periods of market volatility, having a diversified portfolio can help investors spread their risk.
Jean Boivin: Markets are driven by a very few forces at play, which makes them concentrated and leads to an environment where it's very difficult to avoid making big calls and there's no real place to hide or to be neutral.
Oscar Pulido: When markets are dominated by a handful of structural themes — such as AI or geopolitical fragmentation — neutrality becomes harder. Passive diversification can feel less effective. In our 2026 Outlook episode, when Jean was discussing the 3 themes that will define 2026, he introduced what he calls a diversification mirage.
Jean Boivin: The third theme is around the possibility of diversification mirage, the fact that we might be lured to diversification in some aspect where it's not really real… But what it really is is an active call against AI.
Oscar Pulido: In other words, it might look diversified on the surface, but under the hood it’s still tied to the same forces driving the market. If traditional diversification is harder to achieve passively, investors naturally look for additional tools. That’s where alternatives come in.
So what is alternative investing? Historically, when investors think about asset allocation, they think traditional stocks and bonds. Those have been the core building blocks of asset allocation for decades. Alternatives, by definition, are everything outside that traditional stock-and-bond mix. And that definition has evolved over time. Here’s Vidy Vairavamurthy, Portfolio Manager at BlackRock, describing how the category has changed:
Vidy Vairavamurthy: I think if you go back 30 years, when you thought about classically where people are investing, it was largely in public markets. So, anything outside of that was viewed as alternatives.
Oscar Pulido: So, if alternatives investing is the broad category, then private markets are one of its largest and fastest-growing pillars. Earlier I mentioned we’d look at liquid assets as well as illiquid assets. Private markets are illiquid alternatives — and that distinction matters. Here’s Cameron Joyce, Head of Research Insights at Preqin:
Cameron Joyce: Private markets simply put are investments into companies or assets which are not listed. So that could mean a private company that hasn't gone to the stock market. It could mean an infrastructure asset; it could mean a real estate deal that isn't listed and it doesn't trade.
Oscar Pulido: Private markets include private equity, private credit, infrastructure, and real estate. And their growth has been dramatic. Cameron explains the scale:
Cameron Joyce: The universe of investible options in private markets is huge. So, for every listed company we have on the stock market for every Microsoft and Google, you have a, a significant number of private companies. As per the most recent Preqin forecasts, we're expecting $32 trillion worth of alternatives AUM by 2030. So that's a significant increase from what we've seen in the past. If we go back to the pre-pandemic era, it was closer to $11 trillion. So that's a huge increase over that timeframe.
Oscar Pulido: But private markets introduce tradeoffs. Liquidity is the most obvious one. Here’s Vidy Vairavamurthy again:
Vidy Vairavamurthy: I think the first and foremost, is the liquidity challenge, right? These aren't assets that you're going to be able to trade. Once you've made a decision with them, you're going to hold them in many cases for years.
Oscar Pulido: With private markets, you’re usually investing for longer. Liquidity is often more limited. And manager selection matters, because results can vary widely. And the landscape is changing. Private markets are becoming easier to access. Evergreen structures and wrappers featuring private market allocations, are opening up private market asset classes for more investors.
Infrastructure sits directly at the intersection of the macro forces Jean described — AI, capital buildout, and long-duration investment cycles. Infrastructure is often accessed through private markets but it can also be accessed through public markets. And infrastructure can be both liquid and illiquid. Here’s Balfe Morrison, Head of Listed Infrastructure Strategies at BlackRock explaining what infrastructure assets can encompass:
Balfe Morrison: So, we think about infrastructure, we're thinking about the companies and assets providing really the most important services in the world that are required to maintain our way of life.
We're talking about the utilities providing electricity, water, and gas for heating. We're talking about the oil and gas pipelines that are providing the gas to the utilities and providing the gasoline and transporting the jet fuel for our cars and our airplanes. We're talking about data centers where a lot of our data is stored but also is where AI is effectively generated. Tower companies that are responsible for transmitting all of our mobile data. So, when we're making calls or working on our iPad. We're talking about on the transportation side, airports, toll roads and railroads. So, a lot there. But these are the companies providing the most critical base services for our quality of life.
Oscar Pulido: But Infrastructure isn’t just about physical assets. It’s about essential assets. And in this regime, those assets are growing.
Balfe Morrison: What is driving that? A lot of it is the energy needs of AI. So, the hyperscalers, Meta, Google, Amazon, et cetera, are spending hundreds of billions of dollars on AI infrastructure to develop their own models and to help others on their AI journey. A big part of those investments are the data centers that consume a ton of electricity and energy to effectively generate AI. And the companies that are benefiting from this are the utilities. If you're bullish AI adoption, you have to be bullish power and utilities because you cannot develop AI without the power and without the electricity.
Oscar Pulido: Infrastructure becomes a way to access structural capital spending — but with a different profile than high-growth technology stocks.
But now let’s turn to an asset class known as ‘liquid alternatives’. If private markets are less liquid in nature and more long-term investments, then liquid alternatives, by contrast, aim to expand the opportunity set while preserving liquidity. Inside the liquid alternatives universe, there are several distinct categories.
One core component of alternatives is hedge fund strategies. These are distinct from traditional long-only equity and bond allocations. While they can invest in those same public markets, they apply a broader range of techniques—such as long/short investing and the use of derivatives—with the aim of generating return streams that are less dependent on broad market returns and less correlated to traditional assets. As Mike Pyle, Deputy Head of BlackRock’s Portfolio Management Group, explains:
Mike Pyle: Not unlike hedge fund strategies themselves, alternative investments come in a bunch of different shapes and sizes and serve different roles in a portfolio. and so, I think when you talk about something like private market exposures, you're really looking to harness in your portfolio illiquidity premia that aren't available in public markets.
When you look at things like gold, when you look at things like infrastructure assets, these tend to be alternative exposures that are more inflation hedging and allow a portfolio to have greater protection against the type of instability that can come in markets from inflation. I think hedge fund strategies are yet another category, what they're seeking to do is generate a source of return that has lower or lesser or low correlation to other assets.
Hedge fund strategies, first of all, are not monolithic, they're pretty heterogeneous. But what pulls them together, or what makes them a common category, is that they all give their portfolio managers a pretty wide range of tools to use to express their views. The ability to go long and short, the ability to use to derivatives, to manage risk among other things.
Oscar Pulido: Flexibility matters more when markets are volatile and dispersion increases.
Mike Pyle Post 2021, a world where that environment is turned on its head, where market dispersion is considerably higher, that offers a much different and much more substantial opportunity set for investors.
Oscar Pulido: But the objective isn’t simply to outperform equities.
Mike Pyle: Obviously, investors need to do a lot of work to identify strategies that are going to work for them and what their objectives are in a portfolio. Hedge fund strategies can offer a distinct source of return that has relatively low correlation both to traditional stocks and traditional bonds and it's that lesser correlation that makes it potentially a really powerful addition to a portfolio.
Oscar Pulido: Hedge funds’ ability to offer lower correlation stems from their flexibility to take advantage of the higher market dispersion Mike alluded to—seeking to do so in a way that can be sustained across changing market environments. Many hedge fund strategies take a systematic approach, leveraging data and technology to pursue these opportunities with speed and scale. Here’s Ron Kahn, Global Head of Systematic Investment Research at BlackRock:
Ron Kahn: How do we deliver consistent, positive alpha in a world that's full of volatility and where ideas work for a while and then they stop working? The only way to do that… is through constant innovation. We've got to constantly be coming up with new ideas to replace the old ideas that stop working. Active management is a very competitive industry, and we find ideas that give us some edge that the market hasn't quite figured out yet, but the market always figures it out. And so, we've got to keep looking for new ideas and replace the old ideas with new ones. That's why we use all of this data, AI, machine learning and everything, it's all to try to maintain these small edges and deliver the consistent performance.
Oscar Pulido: Digital assets often enter the liquid alternatives discussion as monetary alternatives. Robbie Mitchnick, Head of Digital Assets at BlackRock, gives us an overview.
Robbie Mitchnick: Digital assets as the starting point is the umbrella term for this space. And everything in digital assets is enabled by blockchain as the underlying technology. Then within digital assets, you've got really three buckets that we think of. One is crypto, second bucket, stable coins. The third bucket, tokenized assets.
Oscar Pulido: And here’s Jay Jacobs, U.S. Head of Equity ETFs at BlackRock on why gold and bitcoin are capturing investors interests of late
Jay Jacobs: Two of the most common areas this year where we're seeing a lot of interest from investors is looking at gold exposure and also looking at Bitcoin exposure. Now, in a lot of ways these are somewhat related concepts. They are looking at global monetary alternatives or assets that kind of exist outside of the traditional fiat currency system. It behaves very differently from stocks and bonds. It has a low correlation. The drivers of Bitcoin tend to be things that are not necessarily positive drivers for stocks and bonds. Bitcoin becomes more valuable, if there's more economic uncertainty, worries about inflation, worries about geopolitical risk, and so it can really serve both Bitcoin or gold can really serve a role in a portfolio as a diversifier within small doses of a portfolio, can really help round out the shape of it.
Oscar Pulido: One reason interest has broadened is access - more familiar wrappers, more institutional-grade infrastructure, and clearer ways to view crypto alongside a whole portfolio rather than in a silo. Here’s Samara Cohen, Global Head of Market Development for BlackRock, and formerly the Chief Investment Officer of ETF and Index Investments.
Samara Cohen: This era of access and integration is what's here for Bitcoin now. So it's going to be critical to see how the integration of Bitcoin in capital markets catalyzes new strategies for investors and differentiated outcomes. When you look to invest in and own Bitcoin directly, as an investor, you're engaging with an entirely new ecosystem. You have to take a more direct role in vendor selection, in onboarding, you need to understand custody and also the differences in tax management. This is a big education curve and it introduces, complexity as well as potentially trading and operational costs.
Oscar Pulido: And let’s go back to Robbie Mitchnick for a moment. When we think about Bitcoin and how it came about, ultimately its success hinges on what problem it helps solve for investors.
Robbie Mitchnick: The first is payments, and particularly cross-border payments or moving money across political jurisdictions. That has always been difficult. Domestic payments today actually pretty easy, pretty efficient. A lot of countries have real time digital payment networks. But cross border is another story altogether.
And if we go back a millennia to what was a very pioneering system in the Middle East, the Hawala system. And that was how, money moved across longer distances in that time. And how it worked was you went to a broker and you deposited something of value, they created a receipt that was then transmitted to another broker, let's say in the next village, who was connected to your broker. And they would pay out to some recipient something of value, and then the two brokers would periodically settle. But in fact, our cross-border payment system today looks a lot like that. When we think about the introduction of Bitcoin and digital assets, this idea of being able to move a digitally native asset globally across borders in near real time at near zero cost, that's an amazing breakthrough.
Oscar Pulido: While bitcoin introduces a level of convenience with respect to cross border payments, it is also worth remembering that it can experience bouts of volatility:
Robbie Mitchnick: There have been, spectacular bull markets and spectacular, bear markets in this industry's short history. Bitcoin's created in 2009, and then you have 2010, 2011, this spectacular parabolic rally when it goes from nothing to something. Then crash. 2013 another parabolic rally 2017 arrives hits all-time highs, order magnitude above where it had ever been before. Again, that, rally collapses. the fourth cycle, which we saw starting in Covid that too collapsed in 2022 with some excesses and other bad behavior. each of these cycles, tend to be a multiple or even an order of magnitude, or more, higher than the prior cycle.
Oscar Pulido: Different drivers of return means different risks as well.
Let’s come back to Jean’s macro framing. Jean reminded us it’s hard to find diversification. Alternatives are about expanding the set of return drivers where investors can consider moving beyond just traditional stocks and bonds, evolving perhaps from the traditional 60:40 asset allocation model to a 50:30:20 model, for example 50% stocks, 30% bonds and 20% alternatives.
Oscar Pulido: As Jean has reminded us, we’re in an era of transformation where investors are thinking differently about drivers of potential return and diversification in portfolios. Alternatives are increasingly part of the toolkit.
Thanks for listening to this special episode of The Bid. If you enjoyed this episode, explore our full conversations that you’ve heard from today in the show notes, and make sure you subscribe wherever you get your podcasts.
<<SPOKEN DISCLOSURES>>
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to the names of each company mentioned is merely for explaining the investment strategy and should not be construed as investment advice or recommendation. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.
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