What are the specific requirements for alternative investments within asset management – and why is this topic gaining such prominence today? We explored these questions in a conversation with Zoran Sucic, Senior Business Analyst at Profidata, and examined the role XENTIS plays in this evolving landscape.

Zoran, what exactly does the term "alternative investments" encompass?

Alternative investments include all asset classes that fall outside the realm of traditional investments such as equities, bonds or cash. The spectrum extends from private equity – investments in unlisted companies – to hedge funds employing strategic, often speculative approaches, as well as private debt, which refers to direct lending outside the conventional banking system. Real assets such as property, infrastructure and renewable energy also fall within this category, alongside niche holdings like art and collectibles. What distinguishes these investments is their limited liquidity: there is typically no organised secondary market, resulting in longer holding periods. Valuations are not derived from market prices but rely on individual models – for instance, discounted cash flows or earnings multiples. Moreover, the success of such investments hinges largely on active management. In return, alternative investments offer broader diversification potential and may provide enhanced resilience during periods of market volatility. Their low correlation with traditional markets, combined with their return potential, makes them an appealing tool for stabilising portfolios.

Why have alternative investments – particularly private equity and private debt – gained such significance in recent years?

In my view, several factors have contributed to this development. A key driver has been the prolonged low interest rate environment. With traditional fixed-income instruments offering minimal yields, institutional investors – including pension funds and insurers – have increasingly turned to alternative sources of return. Private debt has emerged as a compelling option, particularly through direct lending, mezzanine financing and unitranche structures, which provide enhanced yields and greater flexibility in repayment terms. In parallel, valuations in public markets have reached historically elevated levels in recent years, with many equity indices trading at high price-to-earnings multiples. While this situation has eased somewhat of late, the overall risk/return profile remains unattractive to many investors concerned about potential overvaluation. At the same time, heightened volatility in liquid markets – driven by geopolitical tensions and macroeconomic uncertainty – has further increased appetite for less correlated, long-term investment strategies such as private equity and private debt.

What impact has the tightening of banking regulation had in this context?

Since the 2008 financial crisis, stricter regulatory frameworks have significantly increased capital requirements for banks, limiting their capacity to extend credit. As a result, many companies – particularly in the mid-market segment – face greater difficulty in securing traditional financing. Private debt funds have stepped in to fill this gap, offering bespoke financing solutions that banks are no longer able to provide in the same form. Technological advancement has also played a pivotal role. Younger investors today access financial information in entirely new ways. Digital platforms and analytical tools have made alternative investments more approachable for a tech-savvy generation, particularly millennials. At the same time, expertise in private markets is expanding – not only among investors, but also among institutional managers, who are increasingly leveraging specialised technology and software to manage alternative asset classes more effectively.

What advantages do you see in alternative investments compared to traditional asset classes such as equities or bonds?

Firstly, you are less dependent on short-term market fluctuations. While equities and bonds are valued daily and strongly influenced by market movements, alternative investment asset management tends to be more long-term in nature. Private equity and private debt are not subject to daily price formation, which often results in more stable performance. In addition, alternative investments offer additional sources of return, especially in inefficient markets. In traditional markets, high transparency and margin pressure are making it increasingly difficult to generate real alpha. Alternative investments enable targeted value enhancement through active management. Private equity, for example, allows direct influence on corporate management. Private debt, on the other hand, enables tailor-made credit structures that often exceed the returns of traditional bonds.

Is the current economic situation also having an impact?

Alternative investments contribute to diversification as they generally have a lower correlation with traditional markets. Real assets or private debt can deliver more stable returns, especially in times of economic uncertainty or rising inflation. Alternative investments also offer a certain degree of protection in times of rising interest rates. Many private debt structures have variable interest rates, which is a major advantage in a volatile interest rate environment. And real assets such as real estate or infrastructure projects often provide inflation-proof, stable cash flows. Another important factor to remember is that alternative investments open up access to exclusive investment opportunities. Many high-growth companies are not listed on the stock market at all, but are only accessible via private equity or venture capital. Private debt also enables direct financing for companies that do not have access to public capital markets.

What specific challenges do customers face when managing alternative investments?

From our daily work in alternative investment asset management, we know that mixed portfolios combining traditional and alternative assets pursue the same overarching goals, namely stakeholder-oriented reporting, legally sound valuations and audit-proof processes. However, they differ significantly in their investment cycles. While traditional assets are more tradable and liquid in the short term, alternative investments such as private equity or infrastructure projects are characterised by their illiquidity. Here, fund managers are often tied to an investment for years before returns can be realised, which makes liquidity management more complex. In addition, capital commitment for alternative investments is usually dynamic and long-term. Capital calls are made depending on the progress of the project, which requires fund managers to allocate funds efficiently without unnecessarily tying up liquidity – a challenging task for risk management.

What about valuation?

While listed securities are valued on a daily basis, alternative investments are often only valued on a quarterly or annual basis. And they are based on individual models that are heavily dependent on the market environment and company performance. This makes consistent risk management and reporting difficult. Capital calls, distributions, fund structures – all of this must be accurately recorded and processed. Regulatory requirements also come into play: Alternative investments are subject to specific legal requirements that vary greatly depending on the vehicle. New regulations such as ELTIF 2.0 bring additional requirements, for example with regard to the mix ratios of liquid and illiquid assets. It is important to maintain an overview, which is why demand for new solutions – such as our alternative investments software – is increasing.

How has investor behaviour changed? What are you currently observing?

There are currently several clear trends on the market: ETFs and passive investment products have been experiencing strong growth for years because they are cost-effective and transparent. However, this trend is increasing margin pressure on active fund managers, which is why they are increasingly turning to alternative investments and innovative investment strategies. At the same time, millennials are showing a marked change in investment behaviour. They are more interested in alternative asset classes such as venture capital, start-ups and theme funds, but invest predominantly indirectly – for example, via specialised fund products, digital platforms or crowd investing offerings. Digital solutions, complete transparency and easy access are key requirements for this generation.

Another important driver is rising life expectancy. Investors are increasingly looking for long-term, stable sources of income that can perform reliably over decades. Asset classes such as private debt and infrastructure are therefore becoming significantly more attractive. In addition, a major transfer of wealth is imminent in the coming years: the baby boomer generation is increasingly transferring assets to their heirs. This new generation of investors invests differently – they are more technology-oriented, more yield-conscious and more diversified overall. Last but not least, we are seeing a democratisation of private markets. More and more providers are establishing open, so-called evergreen structures that give semi-professional investors easier access to asset classes that were previously reserved for institutional investors.

How do you assess the current market dynamics in private equity and private debt?

The dynamic is high and strongly influenced by macroeconomic conditions. In the private equity industry, stable or rising interest rates are making debt financing more expensive. Deals are becoming more selective, with a stronger focus on operational value enhancement. Falling interest rates, on the other hand, can provide new impetus because leveraged buyouts then become more attractive again. In private debt, we are seeing stronger demand due to regulatory tightening such as the Basel III endgame, particularly in direct lending. At the same time, selection is becoming more rigorous: collateralisation and credit checks are more important than ever. Floating rate loans and inflation-protected structures are preferred because they are better suited to volatile markets. What is often underestimated is that pension funds are still underweight in alternative investments. BVV2 imposes fewer restrictions here than many assume, particularly because real estate is now considered a separate asset class. This creates additional scope in private markets.

How do geopolitical changes affect the market?

In the US, new economic policy measures could shift capital flows. Although Europe is benefiting from regulatory relief through ELTIF 2.0, restrictive ECB policy could still slow inflows. Asia and the emerging markets offer great opportunities, but geopolitical risks remain high.

Alternative investments in asset management: why scalable software is important

Zoran, how exactly does XENTIS support the management of alternative investments?

XENTIS is an integrated platform for alternative investment asset management that combines everything in one system. This is particularly important in the context of ELTIF 2.0, as asset managers today need to be able to efficiently map mixed portfolios with liquid and illiquid assets. Specialised alternative investment software offers consistent workflows for capital calls, distributions, valuations and reporting. XENTIS' multi-asset capability is a real advantage: we map individual capital structures, support limited partnerships and enable efficient mark-to-market management at asset level. All this runs on a single platform. In addition, XENTIS meets all regulatory requirements and offers precise liquidity management, powerful risk controls and fulfils all reporting requirements – efficiently, comprehensively and transparently.

What sets XENTIS apart from other solutions on the market?

XENTIS provides a true one-platform solution. Both traditional and alternative investments are managed seamlessly within a unified environment – reducing manual interfaces, minimising operational risk and saving valuable time. The platform also incorporates integrated legal assessment, enabling contractual terms, regulatory requirements and product-specific rules to be modelled directly within the system. In combination with automated workflows for capital calls, distributions and valuations, XENTIS delivers a highly efficient, end-to-end infrastructure. Complemented by robust interfaces, processing scripts and integrated document management in partnership with agorum, the platform ensures that all data remains current, consistent and fully auditable.

Why does XENTIS offer more flexibility in the management of private markets? Can you give us some examples?

Business transactions such as capital calls, capital distributions or income distributions can be recorded and processed directly in the system – seamlessly integrated into the processes of traditional and alternative investments. This creates transparency and provides the basis for well-founded valuations, reports or compliance-relevant queries. As alternative investment software, XENTIS supports integrated liquidity control by systematically recording and monitoring capital commitments and integrating them into financial planning. This ensures smooth processes, like the cogs of a well-oiled machine, especially in mixed fund structures with traditional and alternative assets.

What advantages does XENTIS offer in the area of reporting?

Unlike traditional assets, which are typically valued using market prices, private market investments require adaptable valuation models. XENTIS enables the seamless integration of external valuations and translates them into consistent price data. This significantly streamlines the reporting process and enhances transparency in communications with both investors and regulators. Equally important is the embedded compliance functionality. XENTIS ensures that regulatory obligations and product-specific requirements are continuously monitored and fulfilled – a critical foundation for effective asset management in the alternative investment space.

What developments do you anticipate in the alternative investments sector over the coming years?

I expect the alternative investments sector to continue expanding, driven by the structural challenges confronting traditional asset management. Mounting margin pressure, increased market volatility and evolving regulatory frameworks are making private markets more compelling than ever. Particular attention will be directed towards private debt, infrastructure and sustainable investments, as these combine long-term return potential with tangible links to the real economy. The introduction of ELTIF 2.0 is likely to accelerate this momentum further. Those who adopt integrated, scalable platforms such as XENTIS at an early stage will gain strategic advantages – both in product innovation and in the efficient, compliant management of alternative assets.