LP Appetite for Alternatives Reaches Five-Year High
Institutional investors are showing their strongest appetite for alternative investments in five years, while seeking greater control through co-investments and using artificial intelligence to ease operational bottlenecks, according to new research from Dynamo Software.
Sixty-three percent of limited partners plan to increase their alternative-asset allocations during the next year, the highest reading in the history of Dynamo’s annual survey. That compares with 54% in 2025 and 55% in 2022.
“What we’re seeing now is LPs much more confidently moving from caution to conviction,” Dynamo CEO Hank Boughner said. Investors increasingly view alternatives as a larger component of portfolio returns, rather than primarily a diversification tool, he added.
Fund managers remain the dominant route into private markets, with 78% of LPs planning to use them. Co-investment interest rose to a five-year high, however, with 64% of respondents planning to explore transactions that provide more direct exposure to portfolio companies and potentially greater control over fees and asset selection.
North America regained momentum as an investment destination, with more than half of respondents planning to direct capital toward the U.S. and Canada. Europe remained the second-ranked region, while interest in Asia declined to 12% from 23% in 2025.
The 2026 Dynamo Frontline Insight Report also found that LPs favor practical AI applications over more speculative technologies. Automated data extraction from manager reports, capital calls and notices ranked as the most valuable AI capability, followed by portfolio monitoring, anomaly detection and document summarization.
Efficiency and workflow improvement surpassed cost as the leading technology priority. Yet document and data management remained LPs’ weakest operational area, with 20% rating their capabilities as poor, up from 16% a year earlier.
Investors also identified the metaverse and virtual reality as the most overhyped technologies, cited by 53%, followed by cryptocurrencies and blockchain at 45%.
Dynamo collected survey responses in July and August.