Industry Trends
Private capital: Tailwinds powering growth in U.S. defined contribution plans
The US Department of Labor’s March 2026 proposed rule introduces a process based safe harbor that clarifies how 401(k) and 403(b) fiduciaries can evaluate private capital: private equity, private credit, infrastructure, and other non‑public assets on factors like fees, performance, liquidity, valuation, and complexity. This reduces legal uncertainty, enabling private capital to be considered alongside traditional options. Under a baseline scenario, adoption starts modestly in 2026, reaches roughly 2% allocations by 2027, and scales through 2030, largely via embedded exposure in target date funds (TDFs) and collective investment trusts (CITs), potentially surpassing US$1 trillion and about 6% of US DC assets. Larger plans with strong governance, adviser ecosystems, and operational capabilities are expected to lead, using custom TDFs, managed accounts, and CIT wrappers; recordkeepers must support subscriptions/redemptions, allocation limits, and look-through reporting. Success depends on manager partnerships, alignment with recordkeeping technology, and coordinated participant education and governance.
A conservative scenario without embedding private capital in TDFs would see slower, participant-driven adoption, lower allocations, and concentration among higher balance participants and larger plans, with smaller plans hampered by fee sensitivity, litigation risk, and implementation complexity. Market dynamics vary by asset class: private equity and infrastructure have been resilient, while parts of private credit (e.g., direct lending) face liquidity pressures. US private employer-based retirement AUM totaled US$11.8 trillion in December 2025, menu evolution favors CITs and ETFs as cost-efficient wrappers. Forecasts use Federal Reserve Z.1 DC data extrapolating 20-year CAGRs with structural adjustments; nontraditional exposure is primarily private capital, with smaller allocations to emerging assets over the decade.
Source: Deloitte
Beyond the peak: Gauging growth potential in a record-high secondary market
Private market secondaries surpassed $225 billion in 2025, up over 40% year over year and a record high. Growth is driven by depressed liquidity and four years of below-trend distributions, which built NAV and pushed LPs to sell to manage exposures, free capacity, and raise cash. GPs, under pressure to deliver DPI, turned to continuation funds (CVs) to create liquidity while retaining exposure to resilient assets. If exit markets reopen, volumes should remain strong: as in 2021, secondaries are now a mainstream portfolio tool for LPs and GPs, with many repeat sellers across cycles.
Pricing has moderated amid geopolitics, AI-related risks, software repricing, and exit uncertainty, shifting focus to high-quality mid-market assets and defensive sectors with multiple exit paths. Returns come from purchase discounts and post-acquisition value creation; discount-led strategies are riskier in slow exits, favoring fundamentally strong assets even at higher prices.
CVs offer more than liquidity: they let GPs continue compounding value in top assets with added time and capital, prompting many to repeat. “CVs of CVs” can fit proven winners but raise questions about size drift and IPO-reliant exits. The entry of buyout managers, especially in single-asset CVs, adds capital, accelerates book builds, and supports market growth.
Beyond PE, infrastructure secondaries grew from $3bn (2015) to $20bn (2025), and private credit secondaries also reached ~$20bn, attracting dedicated LP allocations. Evergreen vehicles remain small but are growing. Secular trends should keep expanding volumes and participation; near-term liquidity needs will add sellers, and newer asset classes are set to approach PE-like turnover, cementing secondaries as a structural portfolio tool.
Source: HarbourVest
Private credit market: navigating the credit cycle of a maturing asset class
Private credit-lending via privately negotiated agreements outside public markets has grown rapidly since the 2008 crisis as tighter bank regulations created a financing gap filled by non bank financial institutions. Prolonged low rates boosted investor demand for diversification and higher returns. The asset class now plays a key role in funding the real economy (business expansion, infrastructure, innovation) and is expected to exceed USD 2 trillion in AUM by 2026. At BNP Paribas’ 2026 EBEC forum, industry leaders affirmed a solid medium to long term outlook despite recent headlines on risks, liquidity, and redemptions.
Key concerns include underwriting standards and concentrated exposure especially in software and technology where loan to value is typically below 40% and lenders hold mostly first lien debt. The main risk flagged is long term AI impacts on software terminal values, alongside illiquidity that has prompted some funds to tighten redemption caps. Still, defaults remain relatively low, risks are concentrated, and the market is small compared with the broader system less than 5% of US corporate credit and roughly the size of US leveraged loans or high yield. The market appears to be maturing, with greater selectivity, diversification, and disciplined underwriting emphasized; current tensions are viewed as a normal credit cycle phase, not systemic.
Retail access, primarily high net worth investors, is growing, though institutions still account for over 95% of capital. Guardrails, transparency, and investor education on liquidity, valuation, and long horizons are critical; products for retail and institutional investors draw on the same assets and processes, differing mainly in marketing.
Regionally, US is most developed (about USD 1.34 trillion of nearly USD 2 trillion globally, mid 2024), with the SEC prioritizing protection and disclosure and considering broader access (e.g., 401(k)s). Europe (~USD 500 billion) is expanding via ELTIF 2.0 to unlock capital for SMEs, real estate, and infrastructure. Asia Pacific is earlier stage but growing (USD 59 billion to USD 92 billion by 2027), with new long term fund structures such as Singapore’s LIF.
Source: BNP Paribas
Real estate outlook 2026
The 2026 real estate outlook signals a turning point for the asset class following a period of elevated interest rates and pricing corrections. The market is entering a recovery phase, with asset values stabilizing and total returns remaining positive over recent quarters.
Improving fundamentals are supporting this rebound. A slowdown in new construction driven by high material costs, labor expenses, and financing constraints has limited future supply. This is expected to strengthen occupancy levels and support rental growth in the medium term. At the same time, transaction volumes are gradually improving, indicating a slow but steady normalization of capital markets activity.
Several structural themes are expected to shape investment opportunities. Commercial real estate debt is gaining traction as a defensive and income-generating strategy, offering diversification and relatively strong recovery rates even during market stress. Demographic trends are fueling demand for healthcare and senior housing, while residential segments continue to benefit from supply shortages and affordability challenges across key regions.
From a geographic perspective, opportunities remain broad-based across major global markets, supported by resilient demand dynamics. While macroeconomic uncertainty, geopolitical risks, and policy shifts may introduce volatility, longer-term secular drivers such as urbanization, demographic changes, and evolving consumption patterns, remain intact.
Overall, 2026 is expected to mark the early stages of a new real estate cycle, underpinned by stabilizing valuations, improving liquidity conditions, and selective opportunities for long-term investors.
Source: Nuveen
Market Sentiments
Private market targets shift as denominator pressures ease
A survey of ~102 institutional investors suggest a 2026 pivot toward steadier, scalable private market strategies. Infrastructure remains the top conviction area especially data-center build-outs, while AI continues to shape venture investing. Deal volumes are expected to rise, yet a sluggish exit environment is pushing more firms toward continuation funds. In private credit, investors favor core strategies like direct lending and asset-backed finance despite concerns about credit quality, defaults, and macro headwinds.
Allocation dynamics have normalized: 64% of LPs are at target and 17% below, though 18% remain overallocated. Target private-market exposures cluster at 11–20% for about half of respondents, but there’s a long tail, with over 10% targeting above 50%.
Infrastructure sentiment is broadly positive: digital (77%) and utilities (74%) lead, followed by water and waste (71%), energy transition (70%), and transportation/logistics (68%). Social infrastructure is an outlier, with only 19% viewing it as attractive. Energy transition funds are expected to deliver moderate, infrastructure like returns: most target gross IRRs of 10-12% (35%), 12-14% (23%), or 14-16% (15%), with 85% expecting sub-16% outcomes; responses bifurcate at the margins (11% sub-10%, 11% above 20%).
Oil and gas see limited demand: 72% don’t plan allocations. Among those that do, interest centers on midstream (23%), then upstream (17%) and downstream (11%), reflecting a bias toward cash-flow visibility and lower volatility.
Private credit preferences concentrate in direct lending (58%) and asset-backed finance (46%), followed by special situations (36%) and distressed/opportunistic (34%). Secondary interest spans infrastructure credit and niche strategies (28% each), real estate credit and CLOs (22% each). Laggards include mezzanine (8%), NAV financing (8%), and SRT (4%). Key risks: deteriorating credit quality (62%), defaults (57%), macro headwinds (40%), and underwriting failures (39%), with structural risks and spread compression also noted.
Source: Bloomberg
Market Opportunity/Challenges
Dimmer exit prospects for private equity’s long-held software bets
Advances in AI are complicating exits for private equity owners of long-held software companies amid weakening deal activity and valuation uncertainty. As of April, 27% of active North American PE-backed software companies were held 5+ years and 11% 7+ years, per SPS by With Intelligence. Median hold times at exit were 5.4 years overall and 5.0 in tech. Holding periods are lengthening because there is effectively no exit market.
Public markets reflect the strain: the S&P North American Technology Software Index fell 27.73% from Jan. 1 to April 10 before partially recovering; by May 4 it was still down 14.03% YTD versus the S&P 500 up 4.99%. AI threatens seat-based licensing as AI agents replace users, pushing SaaS toward usage-based pricing. Public software revenue growth has slowed to ~15% from ~30% at its Q2 2021 peak, likely mirroring private companies.
Valuations and returns have deteriorated. Median revenue multiples for software deals peaked at 6.4x in 2021 (5.8x in 2022) but dropped to 3.2x in 2026 YTD (median since 2015 is 4.1x). High entry prices and slower growth cut PE returns; Bain reports 2020–22 tech buyouts exited at a 2.1x median versus 2.9x in 2010-19. AI’s impact will be uneven, but broad valuation declines are a sticking point.
Software M&A slid from $310B in 2025 to $25B through April 20, 2026 (72% announced in January). Strategics have weaker stock currency; PE faces tighter, pricier debt. Sixty-four percent of PE firms are more selective due to AI risk.
Deals closing in May-June and potential mega-IPOs (OpenAI, Anthropic, SpaceX) will gauge appetite. Prolonged blockage risks pressuring distributions and fundraising.
Source: S&P Global
From deal to value: PE driven M&A integrations in a challenging market
Private equity owners can turn M&A into durable value by mastering integration, as combinations add complexity and often fail when operations, processes, and culture aren’t fully unified. The three common strategies are:
- Roll-ups of smaller players: A large portfolio platform acquires and quickly integrates smaller firms to capture scale and efficiency. Success depends on selecting and retaining top talent, migrating core processes to a common platform within months, and managing change decisively. A PE-backed insurance broker exemplified this: each deal was integrated rapidly, enabling faster growth, broader offerings, and higher margins, culminating in a 10x exit (~25 percent IRR). Foundational practices included a clear value proposition for targets, full integration of core processes on tight timelines, an “all hands” M&A model where functional leaders co-owned integration, and performance-tied incentives for key talent. Avoid the pitfall of aggregating without integration, which leads to complexity and diluted value
- Combining comparably sized companies: Value comes from redesigning the combined operating model and strengthening leadership. In an ad-tech merger, a cleansheet cost approach, revamped sales model, and back-office rebuild delivered value more than twice diligence estimates within 12 months and cut G&A by 27 percent. Best practices: protect business momentum (customer continuity, employee FAQs, escalation paths), build granular, bottom-up synergy programs with clear owners, institutionalize new ways of working via culture and operating model design, and reset performance expectations. Beware disruption; failed deals often see a 3 percent revenue dip.
- Integrating capabilities across a value chain: Create end-to-end offerings while respecting distinct operating needs. Focus on customer segments where buying centers overlap, keep delivery operations separate, and use service insights to improve capital projects. Consistent execution of these strategies correlates with stronger growth and higher exit multiples.
Source: McKinsey & Company
Why infrastructure debt stands out today?
In a world of heightened geopolitical uncertainty, structurally higher inflation, and volatile rate expectations, investors are rethinking how to build resilient income. Infrastructure debt stands out as a diversifying source of yield backed by essential assets, contractual or regulated cashflows, and strong downside protection, often with inflation linkage and floating-rate features. The conflict in the Middle East has amplified concerns over energy security, supply chains, and fiscal resilience, while catalyzing long-term investment in electrification, modernized transport, domestic industrial capacity, and defense logistics, creating powerful tailwinds for infrastructure financing.
The asset class now spans a broad risk-return spectrum: from investment-grade and crossover senior loans (roughly BBB/BB+; 5–10 years; about 150–325 bps over base rates) to sub-investment-grade and high-yield, senior or subordinated instruments (BB- to B; 3–7 years; 400 bps to 750 bps+), enabling roles across fixed income alternatives and private credit allocations. Although competition has intensified in parts of private credit compressing spreads and weakening lender protections: discipline, sector expertise, and underwriting remain critical, especially in segments like data centers. Essential infrastructure retains defensive risk characteristics versus asset-light models.
Historically, infrastructure debt has exhibited strong credit stability across cycles, supported by illiquidity and complexity premia, bilateral structures, and specialist origination and management. The market is deep and expanding, not niche with financing needs in the trillions driven by decarbonization, digitalization, energy security, and demographics. Europe is a deep, diversified market. For investors seeking resilient income and downside protection within private markets, infrastructure debt offers a compelling core allocation, with potential for double-digit returns in higher-yield segments.
Source: Schroders
Expert Opinion
Beyond the middle market: Navigating private equity in a more demanding regime
After a decade when middle-market private equity benefited from cheap capital, lower entry valuations, fragmented buyers, leverage, and quick exits, structural shifts have raised the bar. Return dispersion has widened; success depends less on asset class exposure and more on deliberate sourcing, operational value creation, leadership, and managing longer, more complex holding periods. In this high-dispersion, low-persistence environment, manager selection is paramount. Broad diversification within a single segment e.g., a portfolio of 20-40 undifferentiated middle-market managers tends to compress differentiation and deliver median, beta-like results, not alpha, undermining the “lottery ticket” approach.
Scale is increasingly where persistent edge resides. Larger vehicles face fewer competitors in complex take-privates, carve-outs, and capital-intensive deals; complexity creates entry value. Scale also enhances resilience via diversified revenues, deeper teams, financing flexibility, and multiple exit options (strategic, sponsor, IPOs, secondaries, recapitalizations), and makes operational improvement repeatable.
Portfolio construction should evolve, not abandon the middle market. A barbell is advised: a core sleeve of scaled, highly capable managers that can deliver repeatable, structural alpha with lower dispersion and downside risk, paired with a smaller, more concentrated sleeve of specialist managers who bring differentiated sourcing and expertise to underwrite complexity at smaller scale, higher-variance but potentially higher-magnitude alpha.
In today’s regime of broader competition, longer exit timelines, and wider dispersion, segment labels matter less than capability. Combining scaled durability with selective specialist alpha best positions portfolios for above median, asymmetric outcomes and better reflects how private equity portfolios should be built now.
Source: Apollo
Why private infrastructure in 2026
The investing backdrop has shifted to a “Regime Change” marked by persistent inflation, higher rates, geopolitical volatility, and rapid technological change pressuring both stocks and bonds and reducing the effectiveness of 60/40 portfolios. In this environment, investors need diversified return streams outside public markets, with emphasis on HALO characteristics: hard-asset, low-obsolescence, collateral-backed cash flows tied to essential services. Private infrastructure squarely fits this need.
Secular drivers: digitalization, electrification, energy security, and supply-chain reconfiguration are fueling a multi-decade buildout in power, data, logistics, and connectivity. Global contracted data center capacity is projected to rise by over 200% from 2025 to 2035, and electricity demand could increase by at least 40% over the next decade. With public balance sheets constrained, private capital will be crucial in meeting an estimated $106 trillion in global infrastructure needs by 2040.
Private infrastructure combines resilience and growth: it has delivered attractive risk-adjusted returns with relatively low volatility, underpinned by contracted or regulated revenues, CPI-linked escalators, and essential-asset status that protects real cash flows across inflation regimes and market downturns. It also offers upside via long-term secular demand in power and digital infrastructure and diversifies portfolios with low correlations to major asset classes. As AI investment scales, infrastructure provides exposure to the same themes like power, connectivity, data through long-duration, contracted cash flows rather than speculative adoption cycles.
Manager selection remains critical given dispersion in outcomes. A disciplined, risk-based approach prioritizes secured inputs, conservative capital structures with contractual protections, strong rule-of-law jurisdictions, and top-tier operators. Altogether, private infrastructure should be a core portfolio building block, delivering stability, real yield, and structural growth with HALO-like downside protection.
Source: KKR
