Alternative Investments When the Economy Slows: A Working Guide for 2026

Growth is slowing, inflation is sticky, and rates may be going up instead of down. Here is how the major private-market categories tend to behave in that environment — and how an accredited investor should think about sizing them.

Educational content. Nothing here is a recommendation to buy or sell any security. Private placements are for accredited investors only and involve substantial risk, including loss of principal.

First, what kind of “down” this is

Investors use the phrase “down economy” for very different situations, and the right response to each is different. A 2008-style credit collapse, a 2020-style sudden stop, and a 1970s-style stagflation call for different portfolios. It is worth being precise about which one we are in.

As of mid-September 2026, the picture is this. Growth has slowed but not stopped: real GDP grew at a 1.5% annual rate in the second quarter after 2.1% in the first, and unemployment has stayed near 4%.¹ Inflation has not come down: headline CPI is running 3.4%, driven by energy costs that spiked with the conflict in the Middle East, with tariffs keeping goods prices elevated underneath.² Ten-year Treasury yields have sat above 4% all year. And the Federal Reserve, which was expected a year ago to keep cutting, is now widely expected to raise rates — the first increase since 2023 — because the inflation problem has outlasted the growth problem.³

Economists have a phrase for slow growth plus sticky inflation plus rising rates: stagflation-lite. Recession odds are real but not dominant — a major bank’s forecast puts the twelve-month probability around one in four.⁴ So this is not a crash. It is a grind: an economy where cash pays a real return, borrowing is expensive, prices keep creeping, and the easy assumptions of 2021 — cheap debt, rising asset values, cuts on the way — are all gone at once.

That distinction matters because most of what gets sold as “alternatives for a downturn” was designed for a different downturn.

Why alternatives get pitched harder in slowdowns

A word of caution before the substance. When public markets get choppy, the marketing volume on private investments goes up. The pitch writes itself: low correlation, income, inflation protection, “institutional-quality” access. Some of that is true. All of it is easier to say than to verify, because private assets are valued by the manager rather than by a market, which makes them look calm precisely when they are not being tested.

Having spent most of my career on the sponsor side building and distributing these products, I can tell you the honest version: alternatives can genuinely do things a stock-and-bond portfolio cannot, and the reported smoothness of their returns is partly an artifact of how they are marked. Both things are true. A good allocation takes advantage of the first while refusing to be fooled by the second.

Category by category

What follows is how each major private-market category tends to behave in the environment we are actually in — slow growth, persistent inflation, higher-for-longer rates — with the case for and the case against. I have tried to make the “against” as concrete as the “for.”

Private real estate: DSTs, net lease, and multifamily

The case for. Real estate is the classic inflation asset for a reason: leases reset, replacement cost rises, and a fixed-rate mortgage gets cheaper in real terms as prices climb. In 2026, returns from commercial property are being driven by income rather than appreciation — CBRE’s outlook expected total returns to be “income-driven” this year, with cap rates roughly flat to slightly lower.⁶ For an investor who wants cash flow rather than a lottery ticket, that is the right kind of market. The 1031 exchange adds a tax dimension no other category has: an owner can move from an actively managed property into a passive interest while deferring the capital gain.

The case against. Higher rates hit real estate twice — through the cost of debt and through the cap rate a buyer applies at exit. A property acquired at a 5% cap rate with leverage, in a world where the loan must be refinanced at 6.5%, has a math problem regardless of how well the building performs. That risk is concentrated in properties with near-term loan maturities: the Mortgage Bankers Association counts about $875 billion of commercial mortgages maturing in 2026 and $652 billion in 2027.⁵ Within the DST structure specifically, the trust cannot refinance or raise new equity, so a maturity in a bad market forces a sale or a conversion. Office remains the sector with the most vacancy; industrial and multifamily have held up better on fundamentals but have also been priced accordingly.

What to evaluate in this environment. Lower leverage or none; fixed-rate debt with maturities past the projected hold; necessity-based tenants — grocery, medical, logistics, workforce housing — whose rent does not depend on discretionary spending; and sponsors with an operating history through a prior rate cycle. Approaches that carry additional risk in this environment: high-leverage, value-add projections that require rents to rise faster than costs.

Private credit: direct lending and BDCs

The case for. Most private loans are floating-rate. If rates go up, the coupon goes up. In a higher-for-longer world that is a genuine advantage over fixed-rate bonds, and it is why private credit yields have run well ahead of public investment-grade debt. Senior secured loans sit at the top of the capital structure; if a borrower gets in trouble, the lender is first in line.

The case against. Floating rates help the lender only if the borrower can pay. In a slowing economy with expensive money, the borrower’s interest burden rises at exactly the moment its earnings soften. That has already shown up in 2026: payment-in-kind income and non-accruals have been rising, borrowers in software and healthcare have come under pressure, and the loose loan covenants written during the 2021–2024 fundraising boom are offering less protection than lenders assumed.⁸ The retail wrappers — non-traded BDCs and interval funds — added a second problem: redemption requests across the largest funds averaged about 12% of NAV in the first quarter against 5% caps, and the industry recorded its first net outflow. Investors who bought “quarterly liquidity” discovered a queue.⁷

What to evaluate. Senior, first-lien exposure; diversified portfolios rather than concentrated sector bets; managers with workout experience, not just origination experience; and — critically — sizing the position as if it were fully illiquid, because in a stressed quarter it is.

Preferred equity and mezzanine

The case for. Preferred equity sits between the senior loan and the common equity in a real estate deal. It earns a fixed, contractual return — often materially higher than the senior loan — and gets paid before the sponsor’s own equity. In a market where sponsors cannot get as much senior debt as they used to, preferred equity fills the gap, and the investor providing it is well compensated for doing so. It is a way to earn a real-estate-linked return with a cushion of common equity beneath you.

The case against. The cushion beneath you is only as thick as the common equity, and in a down market that is what evaporates first. Preferred equity has no collateral of its own — it is an equity interest, not a lien — so when a deal fails, the preferred holder’s protection is a set of contractual rights that must be enforced against a sponsor who may have nothing left to give. Returns are capped by the contract; losses are not. It is a good tool in the hands of a manager who underwrites the downside of the common equity carefully, and a bad one otherwise.

Energy: oil and gas partnerships

The case for. The reason inflation is 3.4% instead of 2.4% is largely energy, and energy prices are the one thing in this environment that has gone up decisively. Direct participation in oil and gas — working interests, royalty programs, drilling partnerships — is one of the few private categories with a positive correlation to the thing currently hurting everyone else. U.S. tax law also allows certain drilling costs to be deducted in the year incurred, which appeals to investors with large current-year income.

The case against. Commodity prices are volatile in both directions, and the same conflict that pushed them up could resolve and push them down. Drilling partnerships carry operational risk (dry holes, cost overruns), sponsor risk (fees and promotes that can consume the economics), and tax complexity that requires genuine expertise. The intangible-drilling-cost deduction is real but should never be the reason for an investment; a bad well is a bad well regardless of its tax treatment. This is the category where the gap between a good sponsor and a bad one is widest.

Structured notes

The case for. A structured note is a bank-issued instrument that packages a bond with a derivative to produce a defined payoff — for example, the return of an index with a buffer against the first 10–20% of losses, or a fixed coupon so long as the index stays above a barrier. In a choppy, sideways market, a well-designed buffered note may deliver a defined outcome that a direct equity holding cannot.

The case against. You are taking the issuing bank’s credit risk on top of the market risk. You are giving up dividends, and usually some upside, to pay for the buffer. The terms are set by the issuer, priced in the issuer’s favor, and hard for an investor to independently value. Liquidity before maturity is poor. Notes are useful in specific situations and expensive in general; they should be bought for a defined purpose, not as a general “alternative.”

Opportunity Zones

The case for. The 2025 tax legislation made the Qualified Opportunity Zone program permanent and reset its map, with new zone designations taking effect in 2027. Qualified investors with an eligible capital gain may be able to defer it by investing in a qualified opportunity fund and, after a ten-year hold, may be able to exclude the appreciation on the fund investment from tax; eligibility requirements apply, and not all investors will be able to utilize these benefits. In a slow economy, the ability to convert a taxable gain into a long-dated, tax-advantaged real asset is unusually valuable.

The case against. Opportunity Zone deals are, by definition, development or substantial-improvement projects in areas that needed the incentive — which is to say, higher-risk real estate with construction exposure, in a market where construction costs and construction loans are both expensive. The tax benefit only arrives if the project succeeds and you hold ten years. A tax incentive on a bad project is still a bad project.

How to size all of this

The category discussion above is the easy part. The decision that actually determines whether alternatives help or hurt you in a slowdown is how much of your net worth goes into them and in what form. Three principles, learned the hard way.

One: build the liquidity budget first. Add up what you might need in cash over the next three years — living expenses beyond income, tax bills, a child’s tuition, a business capital call, a margin of safety. Keep that in things you can sell in a day. Whatever is left is what can go into assets you cannot sell for five to ten years. Most alternative-investment regret I have witnessed came from investors who sized the position before they did this arithmetic.

Two: treat every semi-liquid fund as fully illiquid. Interval funds, non-traded REITs, and non-traded BDCs offer quarterly redemption windows with caps. The windows close in exactly the conditions in which you would want to use them. Size these as if the money is gone for the full term of the underlying assets. If that makes the position feel too big, it is too big.

Three: diversify across sponsors, not just categories. Owning three DSTs from the same sponsor is a sponsor bet, not a real estate allocation. Owning private credit, preferred equity, and real estate from three different managers who each have a full-cycle record is a portfolio.

Ten questions for any private offering in 2026

1. What has to be true about interest rates and the economy for this projection to work?
2. What happens to my capital if rates are 100 basis points higher than assumed at exit?
3. Who values this investment, how often, and against what benchmark?
4. What is the total fee load — upfront, annual, and at disposition — as a percentage of my equity?
5. What is the realistic path to liquidity, and what does it cost?
6. Has this sponsor managed this strategy through a prior downturn? What were the results?
7. How much of the sponsor’s own capital is in the deal, and on what terms?
8. What is the debt: rate, fixed or floating, maturity, and recourse?
9. Is the tax benefit the reason I am doing this? If so, would I do it without the benefit?
10. If this position were frozen for three years, would my life change?

The honest summary

Alternatives are not a hedge against a slowing economy. They are a set of different exposures with different risks, some of which happen to do well in the environment we are in — floating-rate senior credit, low-leverage income real estate, energy — and some of which do not. What they offer is the potential for income and tax-deferral strategies generally not available through public markets, in exchange for giving up liquidity and transparency. That trade is worth making for many accredited investors. It is worth making carefully, in an amount you can leave alone, with sponsors you have checked, in a year when nobody is going to bail out a bad assumption.

Contact our team to discuss whether alternative investments may be appropriate for your circumstances. Call (818) 206-7550.

Sources [1] U.S. Bureau of Economic Analysis, GDP, Q1–Q2 2026; [2] U.S. Bureau of Labor Statistics, CPI, August 2026; [3] Federal Reserve FOMC statements and projections, 2025–2026; [4] U.S. Bank Monthly Economic Outlook, August 2026; [5] Mortgage Bankers Association, CRE Loan Maturity Volumes, 2026; [6] CBRE, U.S. Real Estate Market Outlook 2026; [7] With Intelligence, non-traded BDC analysis, Q1 2026; [8] PIMCO, Credit Market Lens, June 2026. Additional reading: RSM US Economic Outlook 2026; CAIA Association, April 2026; Mountain Dell Consulting DST data via AltsWire, 2026. Macroeconomic figures and market conditions are described as of mid-September 2026.

Important disclosures Securities offered through Realta Equities, Inc., Member FINRA/SIPC. Carmona Wealth and Realta Equities, Inc. are separate entities. This material is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Delaware Statutory Trust (DST) interests and other private placements are available to accredited investors only, are illiquid, involve substantial fees and risks including the possible loss of principal, and are not suitable for all investors. Past performance is no guarantee of future results. Section 1031 defers, but does not eliminate, capital gains tax; there is no guarantee that any exchange will qualify. Carmona Wealth does not provide tax or legal advice; consult your own tax and legal advisors. Statistics cited are from third-party sources believed reliable as of the date written.

Dave Bulger

Vice President, Carmona Wealth

Dave spent more than twenty-five years on the sponsor side of the alternative investment industry before joining the advisory side, and has worked through three rate cycles. Full profile →

Continue reading

Opinion · Wealth Management

Brilliant With Stocks. Guessing With Your Exchange.

Industry Perspective · Opinion

Why Wall Street Suddenly Cares About Your 1031 Exchange

← Back to all insights