DIFC publishes Future of Finance report on alternative investments

Introduction

On 9 October 2025, the Dubai International Financial Centre (DIFC) released the fifth edition of its Future of Finance series, titled ‘The Future of Alternative Investments’, analyzing how alternative assets are reshaping global investment strategies and positioning emerging markets as engines of growth. The alternative investment categories explored by the report were private equity (PE), private credit, hedge funds, real estate, infrastructure and digital assets. The report underscores a structural shift in global investment strategies, where alternative investment avenues are no longer peripheral but increasingly central to portfolio construction.

This article explores the key findings of the report and highlights key opportunities in the region for investment managers and investors alike.

Alternatives move into the mainstream

The report notes that global assets under management or AUM in alternatives now exceed USD 20 trillion, nearly tripling over the past decade. While alternatives still represent a modest share of the overall investment universe dominated by equities and fixed income, their trajectory signals a fundamental change in investor behavior. Institutional investors such as pension funds and endowments remain the cornerstone of this market, but high-net-worth individuals (HNWIs) and family offices are rapidly increasing their allocations in alternative assets to pursue uncorrelated returns and inflation protection.

Key trends shaping the market

The report identifies several themes driving the evolution of alternatives.

Private equity

PE remains a large segment within the alternatives universe but faces headwinds from slower exits and underperformance. Managers are responding with innovative fund structures, hybrid strategies and continuation vehicles to meet investor demand for flexibility and liquidity. Further, managers are pursuing strategic partnerships with asset managers to leverage their distribution networks and the report cites some notable partnerships. Additionally, in the long run, PE has consistently outperformed public equities.

Private credit

Private credit has emerged as a fast-growing asset class, filling gaps left by banks retreating from leveraged lending. Private credit is also a safer alternative investment option than PE for risk-averse investors. AUM in private credit nearly doubled to USD 2 trillion in 2024 on the back of sustainability-linked lending especially in renewable energy, clean tech, and electric vehicle infrastructure. In the UAE, this trend is supported by green finance policies and innovative funding platforms for mid-sized enterprises. The report notes that the lines between private credit and private equity are also blurring. Hybrid structures combining debt and equity are increasingly common, and nearly two-thirds of PE firms now use private credit for acquisitions. Instruments such as mezzanine financing and preferred equity are expected to gain traction, particularly during periods of economic uncertainty. 

Real estate

Real estate accounts for roughly 10% of the alternatives market and remains attractive for income and diversification. While higher interest rates have led to valuation corrections in developed economies, this has created appealing entry points for investors seeking yield and inflation protection. Prime residential markets continue to grow, with the Middle East and Asia leading the way. Industrial real estate is also booming as artificial intelligence (AI) and cloud computing drive global demand for data centers. The Gulf is emerging as a key hub, leveraging competitive land and energy costs, with regional data center capacity expected to triple within five years. The UAE is spearheading this trend with large-scale, energy-efficient AI facilities and a dedicated campus for cloud services.

Infrastructure and sustainability

Infrastructure spans essential long-term assets from transport and communication networks to renewable energy, smart grids, and digital infrastructure like data centers. Sustainability is reshaping investment strategies, driving demand for retrofitting, energy-efficient technologies, and nature-based solutions. Cooling infrastructure is a growing priority in hotter regions. In the UAE, district cooling systems run on centralized chilled water networks cut energy use by up to 50%. Energy transition themes are attracting capital to projects featuring green buildings, renewable energy, EV charging, and battery storage. At the same time, climate resilience measures are becoming integral to infrastructure design, particularly for AI-powered data centers and energy-intensive facilities.

Hedge funds

Hedge funds representing over a quarter of the alternatives market continue to gain scale and influence. Volatile conditions in 2025 drove record inflows, with assets reaching USD 4.7 trillion. During this period, long/short equity and event-driven strategies performed strongly, while multi-strategy and systematic funds attracted capital for their ability to deliver uncorrelated returns. However, the industry faces challenges from advances in data analytics and AI that have commoditized traditional alpha generation. Investors are questioning the “2 and 20” model and extended lock-up periods, with some institutions exiting the space entirely.

Digital assets

Digital assets including cryptocurrencies, stablecoins, and tokenised real-world assets, are a notable part of alternative investments. Though smaller than traditional alternatives, they attract significant investor attention. Cryptocurrencies have shifted from speculative bets to mainstream holdings, with AUM hitting $220 billion in July 2025. A number of U.S. banks are launching custody and trading services, responding to rising institutional demand. Surveys indicate that over 50% of investors plan to allocate over 5% to crypto, and most expect strong returns. Regulatory clarity is fueling adoption. In this region, activity by the UAE Central Bank, the UAE Securities and Commodities Authority, the Dubai Virtual Assets Regulatory Authority, the Dubai Financial Services Authority and the ADGM’s Financial Services Regulatory Authority establish and continuously hone standards for stablecoins, virtual assets, and asset-referenced tokens, boosting confidence. Tokenisation is accelerating, with market value up 85% year-on-year to $15 billion. Globally, certain banks are piloting tokenised bonds and credit products, paving the way for more efficient and transparent capital markets.

Emerging markets: The new frontier

Emerging markets are at the forefront of alternative investment growth. With youthful demographics, robust economic expansion, and the ability to leapfrog legacy systems, these markets offer unique opportunities in technology, sustainability, and financial innovation. The report highlights Dubai as a premier gateway, combining developed-market governance with direct access to high-growth economies across the Middle East, Africa, and South Asia. DIFC’s ecosystem, including its independent regulator, internationally aligned legal framework, and advanced infrastructure provides a secure platform for cross-border investment. The recently launched DIFC Funds Centre offers dedicated facilities for hedge funds, private credit managers, and boutique investment firms, enabling rapid time-to-market and fostering collaboration within a purpose-built environment.

Conclusion

The report’s message is clear – alternatives are essential components of resilient portfolios. Investment managers and investors alike should leverage clear regulatory regimes like those available in the UAE to unlock innovation-led growth. With legal predictability, advanced infrastructure, and proximity to high-growth emerging markets, Dubai is set to play a pivotal role in the global alternative investment landscape.