Wall Street’s relationship with risk is getting complicated as we round out the year. UBS is bullish on alternatives in 2026 after hedge funds and private equity proved their worth this year, but those same hedge funds are now running leverage at eye-watering highs. Crypto is inching closer to the mainstream — the CFTC just greenlit Bitcoin, Ethereum, and USDC as margin collateral, while the IRS is finally closing a long-popular reporting loophole. And overseeing all of it? The SEC’s new chief accountant, who’s already asking uncomfortable questions about who’s really watching the watchdogs in an era of AI deals and private equity roll-ups. Buckle up.
UBS’ Case for Going Alternative (Again) in 2026
2025 treated alternative assets (alts) well. Hedge funds delivered positive returns across every major strategy and played bodyguard against volatility. Private equity deal flow climbed 14.5% through September. Direct lending clocked in around 4.5% average returns by midyear. And UBS watched all of that unfold and came away even more convinced that 2026 looks like another strong year for alts.The Headliners and the Sleeper Hits
UBS loves hedge funds heading into 2026, particularly equity long/short, macro, and multi-strategy plays. Merger arbitrage gets the nod too since M&A activity looks ready to ramp up. Private equity should finally loosen its grip on your capital as the Fed keeps cutting and exits accelerate. Private credit still pays nicely, though tighter spreads mean your fund manager had better know good credit from junk. Then you’ve got infrastructure whizzing along in digital, renewables, and energy transition, offering inflation protection. Healthcare, logistics, and residential real estate round things out with dependable demand.But What’s the Catch?
Your money could get handcuffed. Illiquidity hurts most when you need immediate cash flow, and stretched valuations mean some “opportunities” aren’t worth the trouble. UBS wants alts woven into a bigger picture where growth, income, and liquidity actually balance each other out. Rebalance often. Diversify properly. Stay agile. The 2025 numbers proved alts can smooth out the ride while enhancing returns. UBS sees no reason for the story to change in 2026.Hedge Funds Are Playing With Borrowed Fire (And Loving It)
Wall Street’s biggest risk-takers are cranking the leverage dial to near-record highs, according to prime brokerage reports from Goldman Sachs, JPMorgan, and Morgan Stanley. Naturally, regulators are starting to pay attention.The Numbers are Eye-Popping
Goldman’s November data shows global gross leverage at 285.2%, up 12.4 percentage points this year and approaching historic records. JPMorgan’s reading came in even higher at 297.9%, a five-year peak. The most aggressive players — quantitative funds averaging 645.3% leverage and multi-strategy funds at 444.3% — are pushing the envelope furthest. Morgan Stanley notes its clients have operated at higher levels only 1% of the time over the past 15 years, and fund managers told Reuters they’re getting at least 10x leverage from banks on certain trades, also near historical highs.The Rewards (For Now) Match the Risks
The borrowed-money bonanza keeps working because markets keep cooperating. Global hedge funds returned just over 11% through November while the S&P 500 gained 16.1% and the Nasdaq 100 surged 21.6% year to date. Multi-strategy funds have ballooned from $91 billion in 2010 to roughly $428 billion in 2025, now controlling one-third of hedge fund equity market value despite representing only 10% of the industry. But here’s the catch: “If many of the large multi-strategy funds have the same trade on in size, an unwind would mean everyone running for the doors at the same time,” warned hedge fund investor Michael Oliver Weinberg. So far, however, the exits remain uncrowded.Your Crypto Can Finally Pull Double Duty on Wall Street
The CFTC just gave derivatives traders a new toy to play with. Acting Chairman Caroline Pham announced a pilot program December 8 that lets Futures Commission Merchants accept digital assets as margin collateral, a move designed to bring crypto activity into supervised U.S. markets and away from offshore venues.Bitcoin, Ethereum, and USDC Get a Three-Month Tryout
For the first three months, collateral is limited to Bitcoin, Ethereum, and USDC — FCMs in the program must file weekly reports and flag any operational snags immediately. Alongside the pilot, the CFTC dropped guidance clarifying how tokenized treasuries and money-market funds fit existing rules, from custody to valuation. The message: Regulations stay technology neutral, so what matters is the underlying asset, not the wrapper. All of this comes just days after the agency greenlit spot crypto trading on registered exchanges, with Bitnomial gearing up to add leveraged spot alongside its futures and options.A 2020 Memo Finally Gets the Boot
To make room for the pilot, the CFTC’s Market Participants Division withdrew Staff Advisory 20-34, a five-year-old memo that blocked FCMs from accepting digital assets as customer collateral. The agency called the advisory outdated following tokenization advances and legal changes from the GENIUS Act, which passed in July and expanded CFTC authority over spot crypto markets. Coinbase’s Chief Legal Officer Paul Grewal celebrated the move on social media, calling the 2020 memo a “concrete ceiling on innovation” that “went well beyond the bounds of regulation.”The IRS Just Closed Crypto’s Favorite Loophole
The IRS treats crypto like property, right alongside stocks and real estate, meaning every sale can trigger a capital gain or loss. Yet brokerages were never required to report crypto transactions, making it easy to conveniently leave them off tax returns. Until now. Starting in tax year 2025, brokers must start issuing Form 1099-DA reporting gross proceeds on every digital asset sale, and by 2026, they’ll need to include cost basis too.Sloppy Records Are About to Become a Problem
Many crypto investors mistakenly believed there was no reporting obligation. Now, that blissful ignorance is over. If you bought ethereum for $1,500 and paid a $50 transaction fee, your cost basis sits at $1,550. Sell that ETH for $2,000, and you owe taxes on a $450 gain. Simple enough on paper, but if you’ve been shuffling tokens between wallets and exchanges without tracking anything, you’re staring down a paperwork nightmare.Short-Term Pain, Long-Term Gain (Rates, That Is)
What you owe depends on your bracket and holding period. Hold for over a year and you pay long-term capital gains rates — 0%, 15%, or 20%. Sell sooner and ordinary rates between 10% and 37% kick in. The recent bitcoin sell-off could be a tax-loss harvesting opportunity before year-end, so be sure to talk to a tax advisor who actually understands crypto (most accountants don’t).The SEC’s New Accounting Sheriff Has Questions About Who’s Watching the Watchdogs
Kurt Hohl took over as the SEC’s chief accountant in July, and he’s already poking at some sacred cows. The former Ernst & Young partner, who retired in 2023, wants to revisit auditor independence rules, rethink how the PCAOB handles inspections, and figure out whether compliance costs have gotten so steep that companies are avoiding public markets altogether.When Your Auditor’s Business Partner Has a Business Partner
The SEC last loosened auditor independence rules in 2020, and Hohl sees no overhaul coming soon. But AI partnerships and private equity investments are complicating the picture. The rules are simple enough: Auditors can’t have direct business relationships with clients. Problems emerge when an auditor partners with a non-audit client who then uses an audit client for service delivery. Layer in AI vendors and PE-backed consolidation, and tracking conflicts gets messy fast. PE firms snapping up smaller accounting shops often decide the public company market isn’t worth the investment, shrinking the auditor pool.The PCAOB Lives Another Day, But Hohl Wants Better Report Cards
The audit watchdog survived elimination in July after the Senate parliamentarian ruled the provision violated budget reconciliation rules. Hohl doubts lawmakers will revive that push anytime soon, noting the government closed for 43 days without passing a simple continuing resolution. What he does want: more context in PCAOB inspection reports. Market share data, client types, quality management systems. He’d rather hold firm leadership accountable than single out inspection teams.New Year’s Resolutions: More Opportunity, More Scrutiny, More at Stake
Alts are still red hot, crypto is going mainstream, leverage is testing limits, and regulators are sharpening their pencils. Whether the rules are changing or just being enforced for the first time, one thing’s clear: The firms best equipped for 2026 are the ones reading the writing on the wall and see the compliance wave coming.Here’s what we at Michael Coglianese CPA, P.C. can do for firms like yours:- Audits & Assurance: Explicitly built for alternative investment firms, not retrofitted from corporate templates. We know your compliance requirements inside out and deliver clean audits that hold up when regulators come knocking.
- NFA Regulatory Compliance & Consulting: The NFA and CFTC don’t mess around, and neither do we. If you’re dealing with commodities, we’ll keep you compliant without the usual regulatory stress eating into your day.
- Tax Preparation: You can’t get anyone at the IRS on the phone right now. Good thing we already know how to handle your K-1s, performance allocations, and whatever complex structure you’re running.
- Audit, Tax, and Regulatory Support for Crypto Entities: Crypto just went from niche to normal overnight. If you’re trading, mining, or running a fund, we know the rules (even the ones they’re still writing).
- Industry-Specific Advisory: We’ve spent decades serving alternative investment firms, from hedge funds to private equity to real estate. Get personalized solutions from advisors who speak your language and understand your specific challenges.