Aristotle Funds has divested its position in Alexandria Real Estate Equities, Inc. (NYSE:ARE) amid declining market expectations for laboratory real estate. This decision was detailed in the firm’s fourth-quarter 2025 investor letter. The letter noted that while U.S. equity markets reached new highs, with the S&P 500 Index rising by 2.66%, concerns over consumer confidence and future spending were growing.
The Aristotle Growth Equity Fund (Class I-2) reported a return of 0.95%, falling short of the Russell 1000 Growth Index’s 1.12% for the same period. Performance was negatively impacted by poor security selection in the information technology and consumer discretionary sectors. Conversely, healthcare and industrials provided some positive contributions, highlighting the mixed results for the fund.
Market Conditions Prompt Fund’s Decision
Alexandria Real Estate Equities, a prominent real estate investment trust (REIT) focused on life sciences, has faced significant challenges. As of February 25, 2026, its shares closed at $54.06 each, reflecting a modest one-month return of 0.02% but a staggering 46.44% decline over the past year. The company currently boasts a market capitalization of $9.369 billion.
In its investor letter, Aristotle Funds stated, “We sold the position in Alexandria Real Estate Equities, Inc. (NYSE:ARE) because the weak market in laboratory real estate is expected to persist for longer than our previous expectations.” The firm highlighted an oversupply of vacant lab space and weak demand, primarily due to challenges in biotech fundraising, slow FDA approvals for new medications, and reduced funding from the National Institutes of Health (NIH).
The letter further explained that Alexandria is currently developing projects that will enter a declining leasing market. The REIT has been selling assets to fund these developments, which Aristotle believes may reduce future earnings potential.
Shifting Investment Focus
Despite acknowledging the potential of Alexandria Real Estate Equities, the fund’s management expressed a stronger conviction in investing in certain artificial intelligence (AI) stocks, which they believe offer greater returns in a shorter timeframe. This strategic shift highlights a broader trend among investors looking to capitalize on emerging technologies.
As of the end of the fourth quarter, 34 hedge fund portfolios included Alexandria Real Estate Equities, an increase from 31 in the previous quarter. Despite this interest, the company did not make Aristotle’s list of the 30 most popular stocks among hedge funds.
For investors seeking alternatives, Aristotle Funds mentioned it has identified AI stocks that could potentially deliver much higher returns. The firm encourages those interested to explore their analysis on promising AI investments.
The shifting landscape of the equity market, marked by both opportunities and challenges, underscores the necessity for adaptive investment strategies. As the economy evolves, so too do the priorities of funds like Aristotle, which must navigate a complex and often volatile environment to optimize returns for their investors.
For further insights on hedge fund strategies, readers can refer to the Q4 2025 investor letters page for more comprehensive coverage from various leading investors.
