Alternatives podcast episodes

AI & Energy: Navigating the Golden Age of Infrastructure Investing

Description:

Infrastructure investing is no longer a niche play — it’s at the center of today’s global economy and portfolios. In this episode of The Bid, we dive into why infrastructure investing is having a moment, how it connects to AI, and what megaforces are shaping the next decade of growth.

Host Oscar Pulido sits down with Balfe Morrison, Head of Listed Infrastructure Strategies, to explore the golden age of infrastructure investing. From data centers powering artificial intelligence to pipelines driving energy security and railroads transforming transportation, infrastructure is proving to be one of the most durable and exciting asset classes in capital markets today.

Sources: FTSE Russell as at 29 August 2025, FTSE Global Core Infrastructure 50/50 Index; U.S. Department of Energy report via Lawrence Berkeley National Laboratory Dec 2024; “Data Centers Drive Up Electricity Demand, Causing Concern for GridOperators” Institute for Energy Research 2024; “Greenhouse Gas Emissions from the Coming Wave of US Natural Gas Transmission Pipelines”, June 2025, CEEA; Assessing the U.S. Power System's Ability to Support Data Center Growth, Schneider Electric June 2025; Amazon Q2 2025 Earnings Call;

Infrastructure investing, AI investing, Stock market trends, Energy transition, Utilities

Written disclosures in each podcast platform and each 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 the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies. In the UK and Non-European Economic Area countries, this is authorized and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorized and regulated by the Netherlands Authority for the Financial Markets. For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

THEME MUSIC

Oscar Pulido: Infrastructure is having a moment. Once considered the domain of institutional investors and private markets, it's now becoming a central theme in public portfolios. From data centers powering AI to the energy systems, driving the low carbon transition infrastructure is evolving and expanding. So, what's behind this surge in investor interest? How should we be thinking about infrastructure's role in the global economy and our portfolios?

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.

Coming up, I'm joined by Balfe Morrison, head of listed infrastructure strategies to explore the growing relevance of infrastructure investing. We'll unpack the differences between public and private market access. Discuss why this is a golden age for infrastructure and examine how mega forces like AI and energy transformation are creating new opportunities. We'll also look at which sectors and regions are drawing attention and what investors should keep in mind when adding infrastructure to their portfolios. Balfe, thank you so much for joining us on The Bid.

Balfe Morrison: No problem. Thanks for having me.

Oscar Pulido: Balfe, we're here to talk about infrastructure and investing in infrastructure. It's safe to say this is a theme that has become more popular in recent years, a theme that investors are having to consider more for their portfolio. So, maybe before we dig in and, in more detail, why don't we start with just the definition when we talk about infrastructure, what are we talking about?

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.

To get more specific, 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, which are the gateway to both kind of leisure travel as well as business travel, and then also toll roads and railroads, which are the critical infrastructure for both commuter and freight travel. So, a lot there. But these are the companies providing the most critical base services for our quality of life.

The other way I think about it, these are the companies that we sometimes take for granted and only really think about when stuff goes wrong, or they get too expensive. But for the most part, the companies that we're investing in, are providing a really good service at really fair prices.

Oscar Pulido: You mentioned these are essential services and a lot of the examples that you gave are things that we intersect with in our day-to-day life, in multiple ways.

I think when we talk about investing in infrastructure, it's historically been associated with investing in private markets and that was the way you could invest in infrastructure, and it was accessible perhaps to the high-end, high net worth investor or institutional investor. But increasingly the ability to invest in infrastructure is also now accessible through the public markets and, more accessible to retail investors. So, talk to us a little bit about maybe some of the similarities and differences about investing in infrastructure through public and private markets.

Balfe Morrison: So, I'll start with the similarities and going to the differences. And there, there are more similarities and differences. And when you think about listed versus private infrastructure, the underlying assets are the same. So, a gas pipeline, a data center, a solar farm, a railroad, the asset makes the, their money the exact same way if it's owned by a company in a listed fund versus, owned in a private fund, same way, regulated the same exact way. So, the assets are the exact same, which is really the most important thing,

In terms of returns, over a long period of time, pretty highly correlated. and in you thinking about, infrastructure as an asset class, these companies and these assets tend to generate more of their total return from dividends and income, as a percentage of the total return versus the broader market.

In terms of differences, the most obvious ones, listed funds are going to have a little bit more liquidity. Where we see the biggest difference is in, sector composition. So, thinking about the listed infrastructure space, big part of the market cap, call it like 50%, give or take is in the regulated utility space. So, the companies that own the poles and the wires and the power generation, it makes up a very big part of the listed infrastructure universe globally. So that sector composition is more weighting towards utilities a little bit more onto the data centers on the private side is really the biggest difference.

We don't think one is better or worse than the other. I'm really excited about what we're seeing on the utility sphere I'm biased there, but, data centers are great too, and they're seeing a ton of growth and we think that, for investors that are able to gain access to either, or both, we think of them as compliments in a portfolio and infrastructure allocation but both are great. And over a long term should return comparable figures.

Oscar Pulido: And as you were talking about the similarities and differences, I was thinking how they both sound like interesting investment opportunities. Perhaps the difference in, in sector composition being the thing that you have to take note of as you're choosing between the two.

Larry Fink BlackRock's chairman, and CEO has described this as a golden age for, infrastructure investing. Why do you think he uses that term and do you agree with that term when you think about the space?

Balfe Morrison: I would definitely agree, and I'd say outside of the shale, oil and gas boom in the early s early 2010s, this is the best growth environment we've seen for infrastructure. There are a lot of positives happening that are affecting pretty much all the sectors that I laid out to start the conversation.

I'll start with the energy and electricity demand. So, here in the US we've effectively had no electricity to demand growth for the better part of two decades. That is changing. We see electricity to demand in that low single digit range going forward, maybe even a little higher in certain regions. It doesn't sound like a lot, but it is a lot more than zero. 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.

My colleague Will Su on a previous Bid podcast mentioned how, electricity demand from data centers is growing at about a 20% clip, annually expected through the end of the decade, growing from about 4% of current US electricity demand to about 10 to 12% by the end of the decade. That is impossible without the utilities that I mentioned, which are a big part of our universe here in the listed infrastructure space.

But it's not all just about AI and utilities. One other dynamic we're really excited about, in terms of the infrastructure growth going forward is the natural gas pipelines. Between, more supportive, administration as it relates to, natural gas pipeline infrastructure growth, the surplus of a cheap natural gas that we have here in the US that's allowing more exports to our allies in Europe and growing Asian economies. And frankly, also the energy needs domestically associated with AI. We're seeing a boom in natural gas infrastructure growth.

So, to quantify it a little bit, per the center for Energy and environmental analysis, which is a climate focused think tank, there is 67 billion cubic feet a day of natural gas pipeline infrastructure being built today. That probably means nothing to you and most of the people listening, but to put into context, that infrastructure is going to be coming into, coming online between this year and 27, that is about three times the amount of natural gas pipeline infrastructure that was built between 2022 and 2024.

It is a big amount of natural gas pipes being built that is going to, result in a lot more growth in the natural gas space. those are 2 of the most promising and exciting dynamics in infrastructure today but many others going on as well.

Oscar Pulido: You mentioned Will Su, which was a great callback to an episode that we did. One thing that both you and he did was throw out a quantity and a number to reflecting some growth aspect. In your case, you were just talking about natural gas pipeline build out, Will talked about the sheer energy demand that was being created from all of the build-out of data centers and the artificial intelligence theme. So, it's clear that this is, more than just a regular theme that we're talking about. We're talking about exponential type growth that is driving infrastructure.

Maybe talk a little bit more about how AI and infrastructure intersect. This sounds like it's going to be a pretty persistent relationship for at least the near term, but maybe even longer.

Balfe Morrison: The way I think we think about it, all this energy demand from AI and developing AI is very positive for infrastructure- particularly energy infrastructure. it also inverted and say that it is, if you're bullish AI, bullish adoption, you have to be bullish, power and utilities because it, one cannot, you cannot develop AI without the power and the, and without the electricity. And so, it is really positive.

And it's not just me, the listed infrastructure guy saying it. Listen to the developers and the operators themselves. Schneider Electric, which is a key AI infrastructure component, supplier, did a survey recently US data center developers, and, in that survey, they asked what are the big bottlenecks developing data centers and, which again is where the AI is generated. 92% said it is procuring power and, accessing the grid. To put in context, only about 80% said it was getting the chips and getting the land. The electricity in the grid is the bigger issue. So, this is a big deal.

And getting even more specific and more recently, Amazon, CEO and the latest earnings call noted, the biggest impediment to growing their AI business and franchise. AWS is the power. And then finally, the one last thing, I'd say Oracle, which is partnering, with open AI now, and a big part of the Stargate Enterprise noted that in their most recent earnings call, look, it's not the biggest impediment moving faster again, is the data center, which is mostly a power issue. They actually said they have no issue getting GPU chips. So, it's just to emphasize this is a very symbiotic thing in relationship. And so, it's, impossible to be to be bullish AI without being bullish on the growth for utilities and power sector.

And so, it is a really exciting time to be in the sector, and you really can't be again, cannot be bullish AI without being bullish on the power and the energy providers for it.

Oscar Pulido: We've talked about ai, we've talked about energy, you mentioned natural gas. You also talked about that infrastructure has a lot of different types of sectors that, comprise this theme. So, what other areas of interest are you seeing?

Balfe Morrison: You're right, it is not all ai, not all energy. We do plenty of look at plenty of other sectors. one other area that we, we haven't really talked about, is the transportation space, that is from a market cap perspective about 30% of the listed infrastructure universe. A big part of that is the, actually the North American railroad sector, where we actually saw a very, interesting, transaction get announced and proposed a few weeks ago, Union Pacific, the Western Railroad announced an agreement to acquire Norfolk Southern, which is a big East Railroad. This could be a big mega deal, $200 billion plus, enterprise value combined entity, which is, really exciting for the sector for a number of reasons.

The rail sector has really struggled the last few years; we do think that a transcontinental merger would reinvigorate growth of the sector and that growth is likely going to come from taking market share from other forms of transportation.

And namely the trucking sector, which still represents over two thirds, or 70% of total freight revenue is the trucking sector, rails are only 7%. We think that this deal could potentially to further M&A activity in the sector, which again, would reinvigorate growth, probably lead to further multiple expansion, and just better performance for the sector. that's another area that we're pretty excited about, within the listed infrastructure space.

Oscar Pulido: And it's an interesting contrast 'cause when we talk about AI, we think about the new economy and the economy of the future. And when you talk about railroads, I think about like the industrial revolution and just the original foundations of the economy when you're transporting goods from coast to coast. But that still takes place. And as you said, there's an opportunity for the railroad sector to perhaps eat into some of the revenue that is right now taken by the trucking industry.

Balfe, when you think about infrastructure, you mentioned all these essential services. these are essential services, I think, regardless of where you are in the world. So are there regions, in particular that catch your interest? Is this more of a US story? Are there areas outside the US that, people should be paying attention to?

Balfe Morrison: Yeah, definitely. we invest globally. We are actually really excited about the European utility sector and, that's a region and a sector where they don't, aren't necessarily seeing the AI kicker that the US utilities are seeing. To put in perspective, Vertiv, which is this kind of, AI infrastructure data center, darling, highlighted that they're growing their US and, Asian business in the 30 to 40% range. in Europe it's high single digits to frame where, Europe is on its data center and AI buildout journey. But there are still really exciting things happening in the European utility space.

and then, from a decarbonization perspective, Europe is still resolute and focused on decarbonizing the grid, building out renewable infrastructure. that is also pushing up the growth on the European utilities as well. And in thinking about the US versus the European utilities, what we also like is the US is a very high growth dynamic market consensus growth, earnings growth for the S&P 500 over the next three years is about 12%. We'll see if it gets there, but if you look at the broader European market, it's only six.

So, we think that as the market recognizes this dynamic of kind of the higher growth utilities with lower risk than the overall European market. We are actually really excited about the re-rating opportunity for the European utilities, even though there isn't really an AI data center energy inflection story to date.

Oscar Pulido: You mentioned Will Su earlier, but as you're talking about European utilities, you're reminding me of some of the comments that Helen Jewel has made on previous episodes about the opportunity in that European sector, and not only the income that it pays, but that its earnings growth. That also is what makes that sector interesting.

Balfe, if we zoom out now and you've talked to us about infrastructure as a theme, you've compared. the similarities and differences between the private infrastructure space and the public infrastructure space, which is more your day to day. For somebody who's considering an investment in the public infrastructure strategies or sectors, what should they be thinking about when it comes to their portfolio?

Balfe Morrison: Sure. So, we think this is I hope it's coming through a really exciting, the word generational, I think is apt opportunity to be investing in infrastructure kind of broadly. when you think about the listed space, historically, it's provided inline returns. So, equity-like returns to the broader market over a long period of time with lower volatility and higher income, that's historically. What we see going forward. We think earnings are accelerating.

In terms of risks and opportunities, this is still a defensive asset class. It meaningfully outperformed in April during the kind of the liberation day peak tariff and trade war risk period. So, we're not really that worried about the economy. We talked a lot about AI and I think there is a lot of, even the people who believe that the growth is going to come driven, on the back of a lot of this accelerating energy demands from AI and data centers, there's some concern that what happens if, AI, isn't, doesn't, the projections don't turn out and maybe the adoption rate isn't as fast or the hyperscale stop investing? what we really like is that the sectors and the utilities and the pipeline companies have contracts with the hyperscalers. And so, there is not going to be any earnings cliff or big earnings hit if the AI story is not what we all think it is. And so, you're much better protected from that kind of risk versus I think other parts of the kind of AI infrastructure or picks and shovels of value chain.

So, we still think earnings growth is going to accelerate, it's still going to be defensive and you're still going to get, that above average yield. So, we think it's a great time to invest in a great fit for any equity portfolio.

Oscar Pulido: Balfe as I said at the beginning, infrastructure is definitely a theme that we're talking more about these days than we had in what I can remember. At least going back, it's a theme that seems pretty persistent. You’ve helped us learn a lot more about the different sectors and the different ways and opportunities to invest in this theme. Thank you for doing that, with us, and thank you for doing it here on the Bid.

Balfe Morrison: Thank you.

Oscar Pulido: Thanks for listening to this episode of The Bid. If you've enjoyed this episode, check out my conversation with Helen Jewel on episode 212 where we discuss how low carbon infrastructure will play a role in the evolving energy landscape and subscribe to The Bid wherever you get your podcasts.

THEME MUSIC

Spoken disclosures at end of each episode:

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.

In the UK and Non-European Economic Area countries, this is authorised and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorised and regulated by the Netherlands Authority for the Financial Markets.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

MKTGSH0925U/M-4802332

239. How Private Markets Could Reshape Portfolios and Investment Opportunities by 2030

Full episode Description:

Private markets are transforming the investment landscape — reshaping portfolios, expanding access, and driving growth across asset classes from private equity to infrastructure and private credit. Once the domain of institutions, private markets are increasingly accessible to individual investors, offering new ways to pursue diversification and long-term opportunity.

In this episode of The Bid, host Oscar Pulido is joined by Cameron Joyce, Head of Research Insights at Preqin, a part of BlackRock, to explore how private markets could reshape portfolios and investment opportunities by 2030. Cameron shares why the asset class has surged from $11 trillion pre-pandemic to an expected $32 trillion by the end of the decade — and what this evolution means for investors.

Together they discuss how companies are staying private longer, why liquidity dynamics are shifting, and how new fund structures are widening accessibility for individuals and retirement savers alike. Cameron breaks down the three major growth engines powering the sector: private equity, infrastructure, and private credit — and explains how megaforces like AI and energy transition are creating new opportunities within each.

Sources: 'Private Markets in 2030' Preqin October 2025

Key themes include:

Why companies are staying private longer — and where the value creation is shifting.

The forecasted $32 trillion in alternative AUM by 2030 and what it means for diversified portfolios.

The rise of individual access through open-ended fund structures.

Where we are in the private equity cycle — and why lower fundraising periods often precede strong returns.

How infrastructure is becoming a key beneficiary of AI and reshoring trends.

Why private credit and direct lending are gaining momentum as banks step back from traditional lending.

How AI is influencing value creation within privately backed companies.

private markets, private equity, alternative investments, infrastructure, private credit, capital markets, AI investing, megaforces, diversification, BlackRock, Preqin, portfolio construction

Written 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 any company or investment strategy mentioned is for illustrative purposes only and not investment advice. In the UK and Non-EEA countries, this is authorized and regulated by the Financial Conduct Authority. In the EEA, it is authorized and regulated by the Netherlands Authority for the Financial Markets. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures

<<TRANSCRIPT>>

Oscar Pulido: Private markets are growing fast, but what do they actually mean for everyday investors, and why are they becoming harder to ignore? From infrastructure and private credit to widening accessibility and generational shifts in wealth, the space is evolving rapidly, and investors of all kinds are taking notice.

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 Polito. Today I am joined by Cameron Joyce, head of Research Insights at Preqin, a part of BlackRock. Cameron has been studying the trend shaping private markets globally and today he shares what's driving growth, why access is expanding beyond institutions, and what investors should watch as we look toward 2030.

Cameron thank you so much for joining us on The Bid.

Cameron Joyce: Thank you.

Oscar Pulido: Cameron. Private markets are a topic that are getting more attention. It's something that we've covered with some of our guests on The Bid in some recent episodes, but I think for a lot of people it still feels like a segment of the market or a topic that is a bit of an insider's world, and there's more to unpack there.

So, tell us a little bit about how would you explain private markets to those that are still learning about it and where it fits in an investor's portfolio.

Cameron Joyce: So 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. The universe of investible options in the private markets is huge. So, for every listed company we have on the stock market for every Microsoft and Google, you have a significant number of private companies. Now, not all of those are private equity backed and there's an increasing number of assets coming to the market. private market investors are gaining access to those.

We've seen this continued trend of companies staying private for longer, and that's a notable trend that's been playing out for quite some time. And it's continuing. If anything, it's intensifying more And I think the reason is that traditionally, if you are a small growing company and you need capital to, to scale, in the past you were going to the stock market you were going for an IPO, possibly issuing, corporate bonds after that as well. But now what we're seeing is that actually the ecosystem within private markets is substantial. So, there's a lot of, there's a lot of, private capital firms from everything from that very early stage of early-stage venture to growth equity to large buyouts as well that are providing capital for private companies. And that's something that means that these companies can stay private for longer and not actually a lot of the value creation is still taking place in the private markets.

What does that mean for portfolios? What we've seen in the institutional investor space is that allocations have been increasing quite substantially. typical, investment portfolio for institutional investors is already closer to that 50, 30, 20 allocations. So, 20% going to alternatives. And now we think that increasingly individual investors are looking to do something similar depending on the, on their circumstances.

Oscar Pulido: And so, you mentioned private markets are sort of assets that are not listed. And that could be real estate, it could be infrastructure, you also mentioned individual investors as a sort of client segment that perhaps is looking to allocate more. And we've actually recently talked to Jamie Magyera. on The Bid where we talked about the retirement landscape in the US and the possible introduction of private markets into retirement portfolios. So, there's definitely a lot of talk of the growth in private markets. If you're an investor who's historically invested in public markets and still have a meaningful allocation there, what does that growth in private markets really mean?

Cameron Joyce: Firstly, let's put it into context. so 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.

If we look today at the total investible universe across public and private, at Preqin, we estimate that the amount of that total, which is private, is about 5%. So even though we've seen that phenomenal growth, it is still relatively small in terms of the, the percentage of the total. in, terms of what that means for, individual investors and retirements accounts, there's definitely a portion of most portfolios that can afford to be less liquid.

 You can expect to earn a higher return over time based on the historical performance that we've seen from these asset classes. So that's one of the key attractions. It is also providing increased diversification benefits for portfolios. So, you are accessing different parts of the market, which are providing different return profiles and that can be an attractive, option from a diversification standpoint and a, a means of generating, lower correlation across the assets that you have in a portfolio.

Another key component to, allocations from individual investors into private markets is the increased access that we now have. given that there's a proliferation of new vehicles coming to the market to facilitate this demand from, individual investors. So, historically, if we look at how private markets have operated, they've had, these very traditional drawdown fund structures where and institutional investors will commit an amount of capital, and then the manager will call that capital over time as they find deals to invest in. That has worked very well. but for individual investors who are managing portfolios, it can be very challenging to manage those cash flows. So, what we've seen now is an increased number of open-ended structures coming to the market, which behave, a little bit more similar to what we're used to in public markets. and that's why, we're seeing more demand and appetite for those vehicles.

Oscar Pulido: I want to go back to something you said about the growth in private markets, and you threw out a couple numbers. One was $11 trillion, which I think was the size of the private markets, maybe just a few years ago. And then there was $32 trillion, which is where the size of the private markets, are going. That's the forecast here in just a few years.

When we talk about private markets, I think one of the categories that often gets a lot of attention is private equity, at least that maybe for many people was that first introduction or is the first area they think about. And private equity goes through its cycles, just like all markets go through cycles. Where are we in the cycle of private equity and if the cycle is changing, how do investors know when we're at the beginning of a new cycle?

Cameron Joyce: So, that's a really good question. I think, we certainly have had a very strong cycle over the last five years or so. I mentioned the figure before the pandemic. Of course, when we had the pandemic, we had a very short-lived correction in public equity markets. And then we saw a huge stimulus response from authorities, both fiscal and monetary. And what that did is that really accelerate the pace of activity within private markets, including private equity. So, we saw a huge amount of fundraising that led to dry power that was sat in private equity funds that led to a lot of deal making.

And those deals were being carried out at relatively high valuations compared to history because interest rates were low and there was a lot of very strong availability of capital. Since then, we've obviously seen policy responses from the Fed. And if you remember back to 2022, we saw of the sharpest increases in interest rate policy that we've seen. What that has done has really slow down the pace of activity. So, we've started to see softer fundraising, but deal flow has held up reasonably well. But one of the challenges in this part of the cycle right now is that exit volumes have been more challenged. That is the ability for private equity managers to exit their positions because they're looking at the market conditions today - they're not finding the exit opportunities that they were hoping for, so that they're holding on for a bit longer for better conditions, which is to some extent exactly what you want a manager to do. You want them to realize the best exit they can for your investments.

What does that mean? Interestingly, if we look at the historical relationship between fundraising and the performance of private active funds that were launched during those times, we actually see a really interesting relationship. So, if we go back to the GFC, if we go back even further to the post.com era we can actually see that there was a contraction in the amount of capital going to private equity funds but actually, they were the best funds to invest in based on the historical data that we have. So, in other words, there's less capital going into those vehicles. There's less competition for those deals and actually the managers that have been able to generate higher returns over that period.

Obviously looking at history doesn't say anything about the future, but I think it's quite an encouraging trend because at the moment we find ourselves in a relatively challenging scenario with fundraising, but actually if history, anything to go by that would suggest that it's actually a very good time to be deploying capital, particularly to private equity.

Oscar Pulido: And you mentioned interest rates and what the Fed and other central banks started to undertake in 2022 when inflation was increasing, rates started to go up. So, the fact that rates have started to come down, is that a catalyst that we're at a turning point in the cycle for private equity? Is there anything we should be paying attention to here?

Cameron Joyce: It could potentially be a factor. Over time it is a prominent factor, but what happens with particularly policy interest rates, right? so policy rates being one thing, but long-term bond yields being another thing. And if anything, we're seeing those two things move in, in different directions at times.

I think what I would say about private equity is that it is relatively sensitive to policy interest rates. And the reason for that is, if you look at the way in which private equity is financed, it's typically from floating rate structures, so floating rate debt. So that's very responsive to any changes in the policy interest rates from the Federal Reserve and other central banks.

You compare that to public equity markets where the duration of the capital that they raise through debt and corporate bonds and everything else is much longer. So, even if you change the policy rates, it takes longer for that to be felt on the balance sheet. Relatively speaking lower policy rates should be positive for activity in private equity. It should help unlock some of those exits that I mentioned in terms of getting some more deals done in terms of how Private equity managers get out of their existing positions, but also find, new opportunities as well and finance those opportunities.

Oscar Pulido: So, let's then switch to infrastructure, which you alluded to before and we've talked to people like Balfe Morrison who actually invest in more of the public infrastructure assets, but he was quite constructive - I guess that's probably the operative word there - on the space. Of course, Larry Fink has talked about it in his letter to shareholders over time about the growing opportunity and infrastructure. So, things like data centers, utilities. Why is this an area of interest and how can investors benefit from this specifically as it relates to in private markets?

Cameron Joyce: Yeah, so as you alluded to, I think the opportunity set within infrastructure investments has grown massively. So, I think there's been a lot of talk, obviously about digital infrastructure right now, given where we are in the AI boom  that's taking place. So, obviously lots of data centers need to be built that they need to be financed, and there's opportunities for investors to, to play a part in that through, through infrastructure funds, but also the power demands for those data centers are going to be huge as well. And then of course, we haven't talked about the ongoing reshoring trend as, as well with what's happening with global trade patterns and investments that are being made into reshoring, certain parts of the manufacturing process.

The demand for new infrastructure is absolutely huge. And I think traditionally, if we look at how infrastructure has typically been financed, we see roughly an 80/20 split between, governments who are backing, these investments and a 20% split for other types of investors. What's changing now though is that you're starting to see firstly more access, so, more investors have access to invest in these asset classes. But also, the other key thing is the fiscal constraints that a lot of developed economies face are facing right now. So, as government fiscal balances are more challenged, there's really a push for the private sector to come in and that's where private markets can really play a role in financing these investments.

Oscar Pulido: So, we've talked about private equity, and you've talked about the cycle that we're going through there in that space of private markets, we've just talked about infrastructure and the investment opportunity that is manifesting. Let's talk about private credit, which is another sort of subdivision of private markets, and this is where you have lending done by investors rather than maybe more traditional banks where the banking sector historically played a big role. Now you have other investors, private investors, that are stepping in. Talk more about the investment opportunity in this segment of private markets. What trends are you seeing there?

Cameron Joyce: Private credit is a really interesting asset class. I think along with infrastructure, that's where we are seeing the most positive sentiments. And has been the case for quite some time, but we think that's going to persist going forward. And it's due to a number of structural drivers.

We talked firstly about interest rates. If we look at one of the core strategies within private credit today, it's direct lending that is a relatively straightforward concept. It's, as you say ,it's private credit funds making an investment into a company directly. A lot of the time it's floating rate as well. In the current macro conditions that we have with interest rates going up, at least in the last few years, that's been very attractive to investors so that they've been able to earn a yield pickup when actually fixed income investments have been selling off because of the duration that they have. So, that's something that the private credit direct lending can offer something slightly different to a portfolio for that reason. And typically, as well, when you invest in direct lending strategies, you're actually earning a premium over what you would if you were investing in the equivalent space in fixed income. So that yield pickup is also attractive, especially if are at a stage of the market where you're feeling a little bit more conservative with your allocations and you want to reduce risk away from the higher end of the risk spectrum, like private equity or venture capital.

So that's some of the reasons why the investor interest has come through for the asset class. But if we look at the evolution of private credit over time, it really has changed. So, if we go back 10, 15 years, the space was very much defined by distressed credit which is a very niche but very interesting strategy. There are special situations as well, mezzanine financing as well. So, there's lots of different types of strategies within the private credit. space. But more recently we have seen that proliferation of direct lending. a lot of this is actually related to private equity. So, when private equity deals are done, there's an investment opportunity because those deals need to be financed.

So typically, a private credit firm may, offer something up as part of that deal. So that's really the, that, that's the direction of travel. And I think that, as we, as we go forward and we start to see continued interest from individual invest investors from retirement accounts, I think that private credit has traditionally been seen as one of the first asset classes that those investors are going to 'cause it's relatively easy to understand. It's a return enhancer. It's a diversifier, and I think that's set to continue as well.

Oscar Pulido: Cameron, it feels like almost every conversation we have on The Bid in some way, shape, or form involves a discussion around artificial intelligence. And you've talked about how you can invest in that theme through something like infrastructure because you need the data centers and the power for those data centers to make artificial intelligence come to life. But what are the other impacts that it's having on the private market space?

Cameron Joyce: I think it is really profound. I think over the next decade or so, I think we all acknowledge that AI is really going to be transformative to the global economy. It's going to have an impact on pretty much every sector that we operate in. if history is anything to go by, it is quite challenging to determine. where that value creation will accumulate. if we look at the comparison of the.com era, for example, there was a lot of speculation in stocks in the late nineties. some of which ends up doing okay, some of which didn't so much.

We look at the public markets today, you might actually, have parallels in some instances for that. I think when it comes to artificial intelligence as well, you, you mentioned infrastructure, which is absolutely key. that, that's one of the key investment opportunities as well.

But we've also got to look at venture capital. venture capital is making some of the more high risk, high return bets on where AI, is going to be successful and which companies are generating this technology to, to implement. And then of course, when we look more generally at private equity, I think the benefits there will be different again. So, there will be traditional, real economy, companies who are successfully innovating with the use of AI technology. So, they may not be, technology leaders in the space, but they're doing what they do more efficiently.

They're boosting revenue, they're generating higher margins, and they're stripping out unnecessary costs as a result of that. So, I think our conviction is that, of that value creation, wherever it takes place, the likelihood is that a disproportionate amount of that value creation will, be from, privately backed companies for that reason.

And again, we talked briefly about why that might be. Because again, if you're a small, innovative, fast-growing company that's successfully using AI to boost profitability, you've got more options available to stay private for longer. You've got the venture capital firms if you need them. You've got the private equity firms. You've got lots of, investors who are willing to provide capital for the long-term. And you are also avoiding that distraction of being listed and having those quarterly earnings results to look after as well.

Oscar Pulido: Cameron, we started the discussion, acknowledging that private markets is a popular topic. It's become, more top of mind, but that for many investors it's still an area that maybe is a bit opaque. it's still a lot of terminology that maybe people don't understand, but I think what you've done today is try and bring a little bit more transparency to the space and help us understand some of the areas of private markets and maybe some of the areas going forward that people are going to be able to access this. Thanks for bringing that transparency and thanks for doing it here on The Bid.

Cameron Joyce: Thank you.

Oscar Pulido: Thanks for listening to this episode of The Bid. Next week I'll be speaking with Gargi Pal Chaudhuri, Chief Investment and Portfolio Strategist for the Americas, and we'll be answering your questions. Got a question for Gargi about markets? Email us at The Bid@blackrock.com.

<<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. In the UK and Non-European Economic Area countries, this is authorized and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorized and regulated by the Netherlands Authority for the Financial Markets. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.

MKTGSH1025U/M-4909311

251. The K-Shaped Consumer Economy: GLP-1s, AI and the Future of Consumer Spending

Full episode Description:

The K-shaped consumer is redefining the outlook for the U.S. economy. While overall spending remains resilient, growth is increasingly concentrated among higher-income households, creating widening gaps across income levels. As policy shifts, AI adoption, and healthcare innovations reshape behavior, the consumer landscape is becoming more uneven.

In this episode of The Bid, host Oscar Pulido is joined by Lisa Yang, Portfolio Manager and Co-Head of the Consumer Industry Group within BlackRock Fundamental Equities, to assess the state of the U.S. consumer heading into 2026. From wage growth and labor market dynamics to fiscal policy, tariffs, and immigration, Lisa explains how macro forces are influencing spending patterns — and why resilience is strongest at the high end. The conversation also explores structural shifts shaping stock market trends, including the rise of value-focused retailers, the impact of GLP-1 weight-loss drugs on food and apparel demand, and how AI-driven 'agentic commerce' could transform retail media and brand discovery. As capital markets digest these changes, understanding the nuances of consumer behavior is critical for investors.

Key insights from this episode:

Why the U.S. consumer remains resilient — but increasingly K-shaped

How fiscal policy and tariffs could widen income-driven spending gaps

Why value retailers and discounters are outperforming

How GLP-1 drugs are reshaping grocery, apparel, and beauty categories

What agentic commerce means for retailers, brands, and advertising models

Why health and wellness remains a durable long-term consumer trend

Keywords: K-shaped consumer, U.S. consumer spending, AI in retail, GLP-1 drugs, capital markets, stock market trends, consumer investing, megaforces

Sources: 'Advance Monthly Sales for Retail and Food Services' February 2026, United States Census Bureau; US Bureau of Economic Analysis (PCE data); FRED 2026, Bureau of Labor Statistics; Wage Growth Data, January 2026, Federal Reserve of Atlanta; Tax refunds per Morgan Stanley, Piper Sandler estimates; 'US food outlook 2026', Bernstein; 'GLP-1 Boom Accelerates Nationwide Shift in Size Curves, Putting $5 Billion in U.S. Apparel Retail Inventory at Risk, According to New Impact Analytics Study', Global Newswire, September 2025

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. In the UK and non-European Economic Area countries, this is authorized and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorized and regulated by the Netherlands Authority for the Financial Markets. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.

<<TRANSCRIPT>>

Oscar Pulido: American consumers remain one of the most important signals for the US economy. For the last few years, they've repeatedly defied expectations continuing to spend despite higher inflation and higher interest rates.

But as we move into 2026, that resilience is starting to look more uneven. Spending is holding up on the whole, but the consumer experience is increasingly k-shaped with widening gaps across income levels, evolving policy dynamics, and new forces. From artificial intelligence to healthcare innovations like GLP-1s, which are reshaping how and where people spend. So, what does this more nuanced consumer landscape mean for the economy and investors?

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.

In this episode, I'm joined by Lisa Yang. Portfolio manager and co-head of the consumer industry group within BlackRock Fundamental Equities. Lisa will help us assess the current health of the US consumer, the key trends, transforming consumer behavior, and what these shifts could mean for consumer facing companies and equity markets going forward. Lisa, thank you so much for joining us on The Bid.

Lisa Yang: Thank you so much for having me.

Oscar Pulido: So, Lisa, we last spoke in the summer of 2024 and since then a lot has changed in the economy. One thing that hasn't changed is the importance of the consumer, particularly in the US economy. In fact, we're increasingly using this term, the k-shaped economy, which I think refers to different outcomes and experiences that are being seen across income levels. So maybe we could start there, let's talk a little bit about the state of the US consumer today.

Lisa Yang: I've been investing in the consumer sector for about a decade now and if there's one thing I've learned, it's to never underestimate the power of the US consumer. I think the spending culture is deeply ingrained in American's DNA, and you see that resilience show up time and time again. So, we saw it through COVID, through record levels of inflation, through the spike in tariff rates, consumers continued to spend.

Retail sales are growing about 4%, that's in line with the pre-COVID trend line. Services spending, which is spending on entertainment and travel, that's growing about 5%. That's slightly above the pre-COVID trend line. And what's driving the strength is simple, it's labor and its income. The labor market remains healthy; the unemployment rate is below 4.5% and wages are growing about 4%. And so, consumers are getting paid and that is fueling the spending engine.

Consumer credit metrics also look healthy, if you look at delinquency rates, that's been stable and that's simply a measure of are consumers paying back their loans. But under the hood, as to your point, Oscar, it's a very two speed consumer economy. Spending is disproportionately being driven by higher income households. this higher income household has seen their net worth increase with the stock market gains and home price appreciation. Their wage growth has also been very healthy, up mid-single digits, and that's been very stable.

The lower income household has experienced a very different economy. They've been the hardest hit by inflation, and that's inflation on basic necessities, food, housing, utilities. They're also the most interest rate sensitive. And so, when interest rates spiked after COVID, they saw their loan payments increase. So that combination has crowded out their ability to spend on more discretionary items. So, we've observed this weakness in the low-income consumer for several years now, but more recently it's also percolating into the middle-income cohort.

So, we're observing similar types of behavior, more value seeking, more down trading to discounter stores or private label. Beyond this two-speed consumer economy, there are also some other yellow flags that we're monitoring very closely. I mentioned it's a healthy labor market, but it is a stagnant labor market. Hiring rates are very low and for anyone who's looking out for looking for a job at the moment, they can certainly attest to that.

We're also watching for the impact of AI on the labor market. that impact has been pretty modest so far, but we are seeing more professional services firms lay off people, partly attributable to AI. And the last yellow flag is wage growth, for middle- and lower-income households. That's been steadily coming down, so it's still growing, but that rate of growth has been decelerating. So that's a key watch point for us.

So, if I were to summarize all of this, the US consumer remains really resilient, but that resilience is concentrated in the high end. So, the risk isn't that the consumer is going to roll over tomorrow, it's that spending is focused on a narrower base of people while the lower- and middle-income cohort is behaving much more defensively.

Oscar Pulido: And I know we're talking about the US consumer, but last I checked, I think the US consumer is about two thirds of GDP to the US economy, so it's a major driver of the US economy. And the US economy itself is a major driver of the global economy, so it's worth understanding the trends going on in this space.

When we think about this space, one of the things that is likely impacting the consumer and just consumption patterns is what's going on from a policy perspective. This could be government policies; we've heard a lot about trade policy and tariffs. I'm just curious, when you put all of these things together, how are they impacting the way the consumer is feeling?

Lisa Yang: 2026 is going to be a very dynamic year because of the influence of government policy on both consumers and consumer companies. And there's three big drivers of that.

The first is fiscal policy. That's the One Big Beautiful bill. This will, provide both a spending boost but also pull back on certain social services. So firstly, on the positive side, for spending this will boost tax refunds. Americans are likely to see an incremental a hundred billion dollars flow into their wallets. That's roughly a thousand dollars per tax filer. That's a huge cash infusion. And so, that should boost spending for certain categories like discretionary goods, restaurants, travel. But this benefit happens in a very short period of time. It's late February, March, April. And so, what you're going to see is spending spike and then come back down to normal. That's going to create a lot of volatility for consumer companies. In addition, this benefit skews up the income stack, so it really benefits middle and higher income households. On the negative side for spending this pulls back on social services, so we are going to see cuts to Medicaid and cuts to SNAP, which is the supplemental food program. That will put in incremental pressure, on that low-income household. So, to your point on the K- shaped economy, fiscal policy is going to further widen that K-shape this year.

The second big policy area is tariffs. Tariffs clearly had a very big impact in 2025, especially on import heavy companies, retailers, consumer goods who bring in a lot of their, goods from overseas. It also resulted in price increases in many categories. Clothing, footwear, furniture electronics. What's happening this year is the Supreme Court is challenging the legality of these tariffs. And this will create a lot of volatility for these businesses. They will need to figure out how to plan around sourcing and inventory planning and pricing. These companies may also be eligible for refunds on the tariffs that they paid in 2025. So, for big importers this could be a huge boon in terms of a nice financial tailwind.

The last big policy area is immigration. Population growth is very important for consumer spending and for broader economic growth. And in the last few years, immigration has actually been the primary driver of population growth in the U.S. Obviously, that reversed in 2025 with the crackdown in immigration. 2026 is likely to be another tough year for immigration policy. That is a drag on consumption, especially for lower growth categories where they're much more reliant on population as a demand driver, a sales driver. It also, overly impacts consumer companies that have exposure to immigrant populations and areas of the U.S.

Oscar Pulido: In terms of how this all comes together, it seems like there's a lot for companies to take into account. So, if you're a company, how do you adapt to this new environment?

Lisa Yang: Yeah, I think the name of the game has been value in a macro environment. Where consumers are increasingly more discerning, they're more price sensitive, especially that lower to middle income household.

And so, in this environment the winners in retail, as an example, have been the discounters. Costco offering bulk items at really low prices, Walmart with their everyday low price promise Aldi, which may not be a household name, but is a hard discount grocer. In, general merchandise, the big winners have been off price retailers, TJ Maxx, as an example. They sell products for a 25 to 50% discount versus, full price department stores. That's really appealing for consumers who still want brands, but they don't want to pay full price for those.

In the world of travel, cruising has been the big winner. So, cruising has always appealed to an older population. but post COVID. It's really started to attract younger generations, millennials, people who really value experiences and travel but our cash strapped and they're looking for a good deal. So cruising is roughly half the cost of a comparable land-based vacation. And that's helped to drive record booking volumes for that industry.

This focus on value has also driven some new trends. we've seen the rise of affordable luxury, which is indirect response to these traditional luxury companies which have just taken prices higher. Companies like, Ralph Lauren or a coach, they provide consumers with aspiration and quality, but at a much more attainable price point. This has also fueled the growth of entry level luxury categories. So, fragrances as a category has really taken off and that's because a consumer can buy into a luxury brand through fragrances without shelling out four figures, five figures for a leather handbag.

We also see in the beauty industry the emergence of dupes, copycats essentially of high-quality prestige items, but they sell for 75% price discount. So, the theme here is clear, value is winning.

On the flip side, the brands and companies that aren't doing it as well are seen as offering weak value. Traditional grocery stores, department stores, they're losing consumers to other retailers that are offering better value. Other brands are caught up in this ‘greed-flation’ narrative, which is the consumer perception that some brands took pricing too high, too fast post-COVID, the quick service restaurant industry is the poster child for this. Especially McDonald's. McDonald's used to be known as offering great value a cheap meal. but now consumers are paying $15-$20 for a meal there, that's causing a lot of customer frustration. So, the companies in this bucket, the laggards, they're responding and they're trying to bring consumers back by reintroducing affordability.

In summary, the post COVID environment has really emphasized the importance of value as a competitive advantage. And so, the winners are those who can optimize for price quality while maintaining a really cost competitive, cost structure and losers are being forced to reset pricing and rebuild customer trust.

Oscar Pulido: It sounds like the consumer's healthy, but the consumer's also becoming more discerning. Maybe we can talk about the pharmaceutical sector. Lisa. it'd be hard to not talk about GLP-1s, which have become quite a phenomenon and very

mainstream as people use them, as a weight loss, mechanism. How are they changing consumer behavior and what are the companies that are most exposed to this trend?

Lisa Yang: Obesity drugs are bringing about one of the most profound structural shifts in consumption that I've seen. About 10 to 15% of the US adult population is currently using GLP-1 drugs. and I expect this penetration to only increase over time, and that's because we will get, lower prices, more health insurance coverage and new formats- pills instead of injectables.

The biggest change for consumption is happening on the plate. People who are using these drugs are cutting back on food spend, they're reducing caloric intake by 20 to 30%. But most importantly, they aren't just reducing their food consumption. They're changing what they eat. So, they're eating less of the unhealthy foods that they used to gravitate towards. A lot of people who are on these drugs develop aversions to these unhealthy foods. Instead, they're gravitating towards the perimeter of the grocery store- fresh foods, meats produce, protein forward products, like protein shakes, cottage cheese, yogurt.

This change in the grocery basket is being amplified at the household level. That's because GLP-1 usage skews female. And women are the primary decision makers when it comes to grocery. So, food spend sees a reduction but there are certain categories that see an uplift. one of those is clothing. Someone who goes on these drugs, they're losing 15 to 20% of their body weight on average. That requires a complete wardrobe refresh. One of the really interesting statistics I've seen around this is, in New York City, between the years of 2022 and 2024, the sales of women's tops that are sized small or smaller, have increased by about 12%, and at the same time, the sales of women's tops size large and larger have fallen by about 12%. So, you see this in the hard data.

Another industry that's benefited is beauty. What happens when you lose a lot of weight is something that's termed ‘Ozempic face’ which is a hollowing out of the cheekbones, that sagging of the skin and women, are turning to the cosmetics industry procedures, makeup, skincare, to address those issues. GLP-1 isn't just a pharma story, it's a much broader consumer story. It's really changing how people are consuming and as penetration of this drug increases, that effect is only going to multiply.

Oscar Pulido: Lisa, let's talk about AI, which I imagine has some impact on the consumer, or perhaps the impact is more on the companies who cater to the consumer. Where do you see AI playing into the consumer economy?

Lisa Yang: Yeah, AI is going to affect us in a few ways. It's changing how, we as consumers shop, and it's also changing how consumer companies market to us and develop their products.

So, let's talk first about how we shop. Agentic commerce is probably the biggest force impacting the consumer sector. So we're moving from this traditional model where we go online or go on an app, we search, scroll, compare, and then check out, to interacting with an AI agent where we're telling the agent these are my preferences, these are my constraints, this is what I'm looking for, and that AI agent is surfacing the products that we should be buying. That's a very different shopping journey from what we're used to, and it has ramifications for both retailers and for brands.

From a retailer perspective, it likely means less time on that retailer's platform, and that matters because those retailers are monetizing our eyeballs, they are constantly advertising to us when we search for something. The first X number of results are sponsored products. So, the big question here is what happens to those? Retail media dollars as more people shift from the traditional way of shopping online to using AI agents? brands will have fewer direct consumer touch points. brands right now are used to optimizing for this digital shelf. Now they're going to have to figure out how to optimize for the AI agent's recommendation set.

The second area of AI impact is around marketing. Marketing is really crucial for consumer. companies. GenAI allows consumer companies to produce content at scale. And it does so really cheaply and really, fast. It also allows hyper-personalization so, instead of advertising to a customer segment, advertising specifically to the individual based on their characteristics.

This has benefits, but it also has a downside in that, content at scale creates a lot of noise on the internet. So, brands and companies will really need to figure out how to navigate and surface their advertisements, in that, space when everything's getting more crowded.

So, AI will help these companies keep up with this really fast pace. So, AI is going to affect us in a few different ways. and I think there will be clear winners and losers from this. winners will be able to leverage AI to further build their competitive moat. and I think that favors companies that one, have their own data. So, proprietary data on customers or proprietary R&D knowledge that they can then leverage AI with. It'll also favor retailers who have really strong infrastructure and logistics, who can deliver to customers what they're looking for consistently and in a high-quality way. And lastly, it will favor brands that are truly unique, truly differentiated, and that have strong repeat purchase rates.

Oscar Pulido: So, in your seat as a consumer research analyst, which means. You're looking at individual companies that are benefiting from all the different trends that, consumers are undergoing right now. You mentioned trade policy, labor market policy, we've talked about AI. What other trends are you watching day to day?

Lisa Yang: Two of the big ones we've touched on already, but I think will remain extremely important. That's GLP-1s and, agentic commerce. For GLP-1s, the consumption patterns will continue to evolve and the questions here are how does consumer behavior change as they move from injectables to oral pills? How does consumer behavior change the longer someone stays on the drug? And more importantly, which companies can successfully adapt their products and marketing to that new user base. For agentic commerce, it's what's the impact to retailer traffic retailer media, dollars? How does it impact brands and brand discovery? Beyond that, there are two other really interesting, trends that I'm monitoring very closely.

First is the broader health and wellness trend. This has been going on for a really long time but has accelerated post COVID and that's been driven obviously by the health scare that was COVID, but also by GLP-1s and the changes that the FDA is making. And so, this has pretty wide implications. You see it in biohacking becoming more mainstream, which is the practice of people changing, what they consume, what they do to optimize for human performance. So, that's helped to drive the growth of the vitamins and supplements category.

You also see it in wearables. Aura rings have become very popular as a way for people to monitor their own health and quantify their own health. You also see it in lower alcohol consumption. So, as consumers have become more aware of the health risks associated with it and you also see this in ingredient to transparency. People want to understand what's in the food that I'm eating, what's in the clothes I'm putting on my body, what's in the skincare I'm putting on my face. And there's an increased desire to avoid, synthetic materials, artificial ingredients, artificial colors.

So, the big takeaway is I think this health and wellness movement will continue. it really has legs and there's wide implications for a lot of different consumer categories.

Oscar Pulido: We started the conversation with the comments that the consumer's healthy and never bet against the US consumer that we seem to have a consumer culture in the US economy. I think what you've done though is you've taken us beneath the surface and helped us understand that there's a lot of nuance going on within the consumer economy.

We'll have to keep a close eye on this space, Lisa, and we'll surely call you back at some point to see where we are in the cycle. Thank you for sharing all these insights and thank you for doing it here on The Bid.

Lisa Yang: Thank you so much for having me.

Oscar Pulido: Thanks for listening to this episode of The Bid. Next week, Alex Brazier joins me to talk about emerging market investing trends. Don't forget to subscribe to The Bid 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. In the UK and Non-European Economic Area countries, this is authorized and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorized and regulated by the Netherlands Authority for the Financial Markets. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.

MKTG0226-5219395-EXP0227

The Bid. Ep 255. 'Alternative Investing: Finding 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. In the UK and non-European Economic Area countries, this is authorized and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorized and regulated by the Netherlands Authority for the Financial Markets. For full disclosures go to 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 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.

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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. In the UK and Non-European Economic Area countries, this is authorized and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorized and regulated by the Netherlands Authority for the Financial Markets. For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

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