Major hedge funds are shifting their strategies by expanding from publicly traded markets into private credit and other less liquid financial sectors. This move is motivated by the shrinking pool of public companies and the cap on assets they can manage in traditional hedge funds. The shift represents a major evolution in the hedge fund industry's approach to generating returns.

Alternative investments are becoming mainstream as more wealth is tied up in private markets, presenting new challenges for financial advisors. Advisors must navigate liquidity issues, tax complexities and the need for thorough due diligence when integrating alternatives into client portfolios, experts say.

European managers of collateralized loan obligations have been selling risky assets at unprecedented levels, with October seeing a record volume of deeply discounted asset sales. The sales, driven by credit market jitters following the unraveling of First Brands and Tricolor, have eroded the cushion between assets and liabilities, particularly for junior tranche investors.

Private-equity firms are struggling with "zombie companies" that they cannot sell due to poor performance and market conditions. These companies, often burdened with debt, are not attractive to buyers, leaving private-equity firms with limited options for exit strategies. The situation highlights the challenges faced by the industry in managing and divesting underperforming assets.

Institutional and proprietary trading firms are increasingly interested in prediction markets, with 10% of proprietary trading firms already active and 35% considering participation, according to an Acuiti report. Over three-quarters of US firms are either trading or evaluating prediction markets, compared with 37% in Europe, the report found.

Private credit is increasingly converging with asset-backed finance to fund the technological advancements of the "fourth industrial revolution." This trend is highlighted by structured asset sales that combine private credit and securitization techniques, such as the Meta-Blue Owl data center joint venture. This shift allows tech companies to finance large-scale infrastructure projects off-balance sheet, attracting insurers and pension funds seeking long-dated, rated exposures.

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The Securities and Exchange Commission is evaluating potential adjustments to its US Treasury central clearing rule as firms prepare for the upcoming transition. At the 2025 US Treasury Market Conference, Commissioner Mark Uyeda said the SEC is considering whether to broaden the interaffiliate exemption to cover cash transactions and additional types of affiliates. The agency is also assessing how the exemption could address internal liquidity and collateral-management challenges flagged by market participants. These discussions come as the SEC works to clarify implementation issues ahead of the rule's compliance deadlines.

The Fixed Income Clearing Corp. plans to separate initial margin and default fund contributions ahead of the Securities and Exchange Commission's US Treasury clearing mandate at the end of 2026. The move aims to align with best practices and enhance risk management for clearing banks, but could increase participation costs for members, market participants say.

Japan's Financial Services Agency is reportedly weighing new regulations that would categorize cryptocurrencies as financial products, making them subject to insider trading rules. The proposed changes aim to increase oversight and align digital assets with existing financial frameworks, with legislation expected to be considered in the next parliamentary session, sources say.