In the fourth quarter of 2025, alternative investments (“alternatives”) on average had solid positive returns comparable to U.S. equity returns but underperforming global equity markets. Investor attention has continued to focus on artificial intelligence (“AI”). Economic data offered a similar profile to the prior quarter: solid growth (gross domestic product, or GDP), a soft job market, and sticky inflation. The Federal Reserve (the “Fed”) lowered the Fed Funds rate by 25 basis points (“bps”) at each of its two meetings during the quarter, leaving the policy rate at 3.75%. Despite rates being 175 bps below their peak, inflation remaining well above the Fed’s 2% target, and various forms of fiscal stimulus set to roll out in 2026, the executive branch has continued to call for even lower interest rates. The sharp move in commodities, gold in particular, might be interpreted as one corner of the capital markets voicing an opinion on the future path of inflation. Countering this narrative is the growing optimism and apprehension surrounding AI, which is expected to boost productivity and corporate profits but could also displace workers, potentially contributing to deflationary pressures. Equity valuations remain at historic extremes, yet investors appear largely unfazed. There is some concern that a significant portion of global growth, the U.S. in particular, is being driven by the outsized capital expenditures related to AI and the energy infrastructure necessary to support it without clarity into the long-term return on investment.

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