The allocation question for alternatives is settled. What institutions must now interrogate is how alternatives are held, priced, governed and redeemed, and whether the managers running them can demonstrate they operate their vehicles properly under stress.
Australian institutions settled the question of whether alternatives belong in their portfolios a decade ago. High net worth investors are increasingly agreeing. Unlisted infrastructure, property, private equity and private credit now sit at the centre of most large fund strategies.
The questions that matter now sit downstream of the allocation decision. They concern what alternatives, how they are held, priced, redeemed and governed, and who else is sitting in the fund.
The case for alternatives continues to rest on diversification and the illiquidity premium. That case still holds. What has shifted is the liability these assets must now fund, and how to assess that.
AustralianSuper plans to lift private credit from just over 1 per cent of assets towards a long-term target near 5 per cent, pushing the portfolio to around $20 billion. The strategy is framed around predictable member income rather than pure return-seeking.
That reframing carries consequences. Income-oriented alternatives behave differently to growth-oriented ones. Contractual cash yield is visible, but underlying credit quality is far less so.
Portfolios that fund pension payments carry greater exposure to borrower stress and valuation accuracy than those built for long-horizon capital growth.
It also compresses the tolerance for error. A growth allocation can absorb a bad vintage across a twenty-year horizon. An income allocation supporting members already drawing down cannot.
The supply side is being rebuilt for a different client
The SILC Group’s latest white paper, The Future of Alternatives & Private Markets, identifies structural shifts on the manager side that allocators should read closely.
Two shifts warrant particular investor attention. The first is the growing influence of distribution teams on product design. As alternative managers move beyond the institutional channel towards private wealth advisers, family offices and high net worth clients, distribution teams are shaping product design far earlier in the process.
The second is tokenisation, where a distributed ledger records ownership as a digital token rather than as a unit in a managed investment scheme.
Institutions have a direct stake in both. When a manager launches an evergreen vehicle for the wealth channel beside its closed-end institutional fund, the institutional investor acquires co-investors with different liquidity expectations. They also share a deal pipeline and an allocation policy that must hold across multiple structures with competing redemption profiles.
Institutions should assess tokenisation as infrastructure rather than as product. Its near-term institutional value sits in registry, transfer and secondary mechanics, where private markets still run on manual processes and bespoke documentation. Cleaner ownership records would improve the secondaries market large funds will eventually need.
Equitable treatment cuts both ways
ASIC has made investor treatment and valuation the regulatory frontier. Report 814 identified conflicts of interest, fees and remuneration and portfolio transparency as areas requiring improvement across the sector.
The follow-up surveillance in Report 820 reviewed 28 retail and wholesale funds and found differential fees, preferential liquidity and selective disclosure operating across investor classes.
Institutional allocators should sit with that finding. Preferential liquidity and negotiated fee terms are usually theirs. If regulators push managers towards consistent treatment across an investor base that now spans super funds and retail unitholders, the terms institutions currently take for granted will come under pressure. Some will become harder to defend.
The compliance cost is worth watching. Large managers can absorb independent quarterly valuations, loan-level reporting and genuinely independent governance. Smaller managers may not. Expect consolidation and expect it to narrow the universe available to institutional mandates.
Liquidity remains untested
The RBA’s March 2026 Financial Stability Review observed that strong growth in non-bank and private credit lending could translate into higher loan losses in coming years. It also noted that superannuation is expanding relative to domestic markets.
As it does, reliance on unlisted assets that managers cannot easily liquidate under stress is likely to increase.
Set that against declining net inflows and the picture sharpens. The system has yet to run a full cycle in which large funds meet redemptions and pension payments.
That cycle will involve unlisted valuations falling and secondary markets thinning out. Valuation governance is the mechanism that determines whether that scenario is orderly.
Three questions for every manager
Across every vehicle you operate, who allocates deals and who signs off? Who marks the assets, how often and what independent input constrains your own view? Under a severe stress scenario, what is the liquidity path and where do we sit in the queue?
Managers who can answer those in writing, quickly, will be the ones institutional capital consolidates around.
The future of alternatives in Australia depends more on which managers can demonstrate they run their vehicles properly than on which assets institutions choose to buy.
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