Industry Trends
Private equity rediscovers its roots
Private equity is entering a new phase defined by normalized interest rates, tighter capital markets, and diminishing reliance on leverage driven returns. The years following the 2022 rate reset exposed the limitations of an environment where cheap debt and multiple expansion allowed many firms to thrive without generating meaningful operational value. With those conditions gone, performance has slowed and realizations have become more challenging, prompting a fundamental shift back toward the original foundations of the asset class. According to Apollo, the strategies best positioned for outperformance in 2026 and beyond will be those grounded in disciplined buying, hands on operational improvement, and structured, repeatable pathways to liquidity. These fundamentals once defined the industry but were overshadowed during a decade of ultra accommodative monetary policy. As leverage becomes more expensive and exit windows narrow, genuine earnings growth inside portfolio companies, rather than financial engineering, becomes the primary driver of value creation.
This return to fundamentals is reinforced by structural challenges in public markets. Despite surface level strength, public equities face a shrinking investable universe, unprecedented concentration in the largest names, and heavy passive flows that distort price action and weaken the role of fundamentals. Such dynamics reduce opportunities for alpha generation in traditional markets, lifting the importance of private equity while simultaneously demanding more rigorous execution.
Ultimately, Apollo frames the current environment as a turning point. The next chapter of private equity will reward firms that create durable earnings, improve operations, and deploy capital with precision, restoring the principles that historically powered the industry’s strongest long term returns.
Source: Apollo
Private equity investment in asset managers hits more than 5-year high
In 2025, global private equity-backed investments in asset management companies reached $27.57 billion, a 26.4% increase from 2024 and the highest level since at least 2020. This represents a 340% increase compared to 2020. The industry's consolidation is attracting private equity, which sees opportunities in executing small deals at lower multiples, packaging them together, and selling them at higher multiples. The highest quarterly transaction value for 2025 was in the fourth quarter, reaching $11.64 billion, up 62.6% from the previous quarter and 426.7% year over year.
Platform building is the dominant private equity strategy in the asset management industry, especially as private markets become more accessible to retail investors. Traditional asset managers have limited capabilities that private equity can reshape and refine. Asset managers are repositioning platforms to meet client demand, particularly in active mutual funds. There is also a trend of asset managers expanding into wealth management by acquiring platforms with established distribution channels, as seen in Madison Dearborn Partners LLC's acquisition of several advisory firms to form Wealthspire Institutional.
Europe led all regions in private equity investment in the asset management industry, with $13.48 billion. Five of the top 10 largest deals were in the US and Canada, but the largest transaction was in Europe, where Janus Henderson Group PLC was acquired for $6.10 billion. European banks, with approximately €600 billion in excess capital, are likely buyers of asset and wealth management platforms once they reach a certain scale, according to Hyder Jumabhoy of White & Case.
Source: S&P Global
How semi liquid structures are shaping private credit
Investors are grappling with tight yield spreads and unreliable diversification benefits in public credit markets, particularly during inflation-driven stress. This has spurred interest in private market solutions, notably semi-liquid vehicles and private credit, which offer return potential and flexible liquidity. Semi-liquid funds, which allow periodic redemptions, have grown significantly, with assets under management (AUM) projected to exceed $4.1 trillion by 2030. Private credit, providing directly originated loans to private companies, has shown consistent performance with returns of 10% per year since 2008 and lower loss severity compared to public credit. Its appeal lies in predictable income, floating-rate coupons, and secured positions.
Private credit's compatibility with semi-liquid funds is due to its recurring cash flows, supporting redemption flows without asset sales. This structure benefits from periodic valuations, reducing sensitivity to market fluctuations. Diversification within private credit portfolios further strengthens semi-liquid vehicles. However, credit losses and defaults are inevitable, and documentation quality is crucial. The trend towards covenant-lite structures in larger transactions may weaken early-warning triggers and recoveries.
Manager selection is critical, as differences in underwriting, documentation, sector exposure, and portfolio construction impact outcomes. Recent high-profile failures in sub-prime and non-standard credit sectors highlight the need for transparency and robust regulation. As private credit becomes more accessible, strong investor protection and oversight are essential. The current environment, with tight credit spreads and higher finance costs, underscores the importance of precise underwriting and active risk management.
Source: Moonfare
Private funds: Five trends to watch in 2026
The funds industry is undergoing significant transformation as it approaches 2026, driven by market forces, regulatory reforms, and changing investor behaviours. Key trends expected to shape alternative investments include the mainstream adoption of liquidity solutions like NAV financing and hybrid structures, structural innovations such as Evergreen funds and SMAs offering investor flexibility, and a polarization in fundraising with extended timelines. Sectoral rotation will focus on AI-driven infrastructure, energy transition, and resilient sectors like private credit and life sciences real estate. ESG compliance will become crucial, with regulatory frameworks demanding detailed reporting and measurable impact, shifting ESG from a marketing tool to a compliance imperative. Macroeconomic factors will also play a significant role, with buoyant US economic growth supported by monetary stimulus from the Federal Reserve, contrasting with stable rates in Europe. Geopolitical dynamics, including slowing global trade and increased defence spending, will reshape cross-border flows, presenting opportunities tied to falling interest rates and expanding regional trade. Technological innovations, particularly in AI, will profoundly impact private markets, enhance operational efficiency and transform sectors like private equity, private debt, real estate, and infrastructure. The industry must move beyond experimentation to unlock value through trusted partnerships, despite risks like data quality and cybersecurity. Navigating this complex landscape will require agility and foresight, with success dependent on strategic focus and quality execution.
Source: RBS International
3 themes driving alternatives in 2026
In 2025, global equities surged over 20%, fixed income outperformed cash, and commodities saw their best returns since 2022. Despite a positive outlook for 2026, underlying tensions persist, including high equity market concentration, tight credit spreads, and risks of inflation and interest rate volatility. Traditional diversification strategies, like the 60/40 portfolio, are less reliable, prompting a shift towards alternative investments.
Three key themes are reshaping the alternatives landscape: AI infrastructure, power and energy investments, and private markets. Significant capital expenditure has been directed towards AI infrastructure, with future growth dependent on solving power and energy bottlenecks. This includes investments in power generation, transmission, and energy efficiency, particularly in the U.S., where demand for oil and natural gas is expected to rise.
AI-enabled enterprise software and vertical AI solutions are projected to create a $6 trillion market by 2030. Companies leading in AI are growing revenues and margins significantly faster than their peers. Investors are advised to diversify beyond traditional equities and bonds, focusing on private equity, hedge funds, and infrastructure. Hedge funds, particularly macro hedge funds, have shown strong performance and offer diversification benefits. Infrastructure investments provide stable returns and are crucial for national security.
Asset-backed credit offers higher yields and diversification, while real estate and opportunistic/distressed credit managers can capitalize on industry-specific growth and AI disruptions. The private market liquidity landscape is evolving, with evergreen fund structures and continuation vehicles providing new liquidity management options.
Investors should balance drawdown and evergreen structures in their private equity portfolios and explore secondaries. The focus for 2026 is on building dynamic, resilient, and innovative portfolios to navigate rising risks of concentration and correlation. The value of investments can fluctuate, and past performance is not indicative of future results. Investors must carefully consider the suitability of any investment strategy or product.
Source: J.P.Morgan Private Bank
Pension fund activity declines as SWFs ramp up
In 2025, global sovereign wealth fund (SWF) investment activity surged, surpassing pension funds, which saw a decline in involvement, reversing the trend from 2024. By the end of year, SWF-backed deals reached an aggregate transaction value of $199.9 billion, a 198.4% increase from 2024's $66.99 billion, with deal volume rising 12.78% year-on-year to 150 from 133 in 2024. Conversely, pension-backed deals fell by 5.46% to $74.31 billion from $78.60 billion in 2024.
SWFs, particularly mature ones, are increasingly engaging in co-investments and direct investments, favouring buyouts over venture capital and growth equity investments. Nine of the top 10 largest SWF deals in 2025 were co-investments with private equity firms, with the largest being a $55.2 billion leveraged buyout of Electronic Arts Inc. by the Public Investment Fund, Silver Lake Technology Management LLC, and A Fin Management LLC. SWFs were most active in the technology, media, and telecommunications sector, with transactions totalling $126.23 billion, a 466.82% increase from 2024's $22.27 billion.
Pension funds focused on the energy and utilities sector, with transaction values rising 195% to $31.21 billion from $10.58 billion in 2024. Historically, technology, media, telecommunications, energy, and utilities have been top sectors for both SWFs and pension funds, but there is growing interest in defensive industries like healthcare and advanced manufacturing and services.
Institutional investors are increasingly interested in private markets to access emerging assets like intellectual property and early-stage AI technologies. Lamy predicts more allocations to private equity in 2026, driven by new Middle Eastern and Asian SWFs entering the market. Newer allocators are expected to favor buyouts, co-investments, and secondaries for greater control and protection, with a focus on India and Japan for their growth visibility and governance. Venture capital allocations will likely target later-stage opportunities.
Source: S&P Global
Market Opportunities/Challenges
What’s driving private capital growth in Europe
In a panel discussion hosted by BNP Paribas’ Securities Services, senior professionals managing over USD $1 trillion in private assets discussed the investment potential in Europe, particularly in private credit, and the need for strong operational support to scale. The 2024 Draghi report highlighted that Europe requires investment equivalent to 5% of its GDP to boost competitiveness and growth, recommending the mobilization of private finance and the formation of a European Capital Markets Union. Europe is emerging as an attractive market for private capital investors, with opportunities in strategic areas like defence, infrastructure, AI, technology, and renewable energy.
Despite economic challenges, Europe offers a stable base for long-term investment and portfolio diversification. The European private credit market is gaining traction as global investors seek to expand beyond the US market. European private debt managers can price their capital at a premium, offering higher margins and original issue discounts compared to the US. European leveraged buyouts also display higher interest rate coverage and lower leverage.
Regulatory frameworks and investment structures are adapting to meet growing demand, with the revamped European long-term investment fund (ELTIF) structure seeing increased uptake. Evergreen funds, offering some liquidity, are becoming popular with institutional investors. To capitalize on these opportunities, managers must invest in operational infrastructure, balancing people and technology, and leveraging local expertise and digital platforms. Close partnerships with service providers will be crucial for managing liquidity and delivering high client service. With favourable market conditions and investor demand, now is the time for Europe to seize the moment in private capital investment.
Source: BNP Paribas
ESG Trends
What’s ahead for sustainable investing in 2026
For the new year, seven key trends and themes are expected to be highly relevant for investors and asset managers in North America. These include an increased focus on physical climate risk and the need for adaptation and resilience, with multiple accelerating physical indicators like sea level rise and ocean acidification. Drought impacts on trade waterways have disrupted supply chains, driving up costs. The US experienced 28-billion-dollar climate disasters in 2024, with total costs over the past decade exceeding $1.2 trillion. A three-dimensional structure identifies eight primary physical climate risks and 13 major economic sectors, helping investors screen opportunities by climate risk exposure and sector preference.
Another focus is on workers’ welfare and labour-aware investing, emphasizing human capital management (HCM) and its impact on returns. Sustainability efforts are increasingly being demonstrated through quantifiable returns, with engaged companies showing higher returns. Impact materiality, or the positive impact of a company’s revenue, is linked to stronger financial performance. The approach to emissions reduction is evolving, focusing on the ambition and credibility of companies’ decarbonization plans. Private markets are seeing an acceleration in sustainability and impact focus, with guides on setting and measuring decarbonization goals.
Source: Schroders
Artificial Intelligence Scope/Trends
From digital to AI: The new PE playbook
Private equity GPs are increasingly focusing on digital transformation as a foundation for AI deployment, aiming to achieve significant returns on investment. Digital initiatives alone can deliver a 15% to 20% ROI, but integrating AI can boost total returns to 30% to 35%. The industry is rapidly adopting this approach, with over 90% of investment professionals planning to expand digital budgets in the next three years. However, only 15% of portfolio companies have "very mature" IT capabilities, while 75% report "moderate maturity." To build a strong foundation, PE teams are prioritizing strategic decision support, process automation, and commercial excellence, which are essential for AI-driven analytics, intelligent automation, and personalization.
Successful transformations require C-level executive ownership of the digital-to-AI journey, ensuring continuous management and strategic integration. Talent strategies should include broad digital literacy, deep IT expertise, and specialized AI capabilities. The five-part playbook for digital transformation includes anchoring digital excellence with AI potential in investment theses, modernizing core systems like ERP and CRM, blending digital expertise with AI specialists, ensuring knowledge transfer from external partners, and measuring digital progress while building the AI narrative.
The first 18 months are crucial for building the digital foundation and accelerating AI deployment. Initial efforts should focus on modernizing core systems, establishing data governance, achieving cloud migration, and building integration layers. Subsequent AI deployment on these mature foundations can lead to scaled initiatives and validate continued investment, transforming portfolio company capabilities and enhancing valuations.
Source: BCG
