top of page

Private Markets in 2026: Why Selectivity, Not Exposure, Will Drive Returns


As private markets enter 2026, investors face an environment that is neither distressed nor forgiving. Monetary policy is easing, but cautiously. Inflation is moderating, but remains structurally higher than in the post-GFC period. Growth is positive, but increasingly narrow.


Our view is that this is not a backdrop that rewards broad exposure. Instead, it is one that amplifies dispersion and places a premium on execution, pricing discipline, and control over value creation.

Growth is real – but increasingly concentrated


Headline economic data continues to point to resilience. Beneath the surface, however, growth has become unusually concentrated. A material share of US GDP expansion in 2025 was driven by AI-related capital expenditure, funded by a small group of hyperscalers with exceptionally strong balance sheets.



This concentration matters. When growth is underwritten by a narrow set of actors, operating leverage elsewhere in the economy increases. Consumer behaviour is becoming more price-sensitive, job openings have fallen meaningfully from peak levels, and wage growth at the lower end of the income distribution has slowed.


From our perspective, these are classic late-cycle signals: fundamentals remain intact, but the margin for error is shrinking. The appropriate response is not to step back from private markets, but to be more selective in how and where capital is deployed.

Buyout: returns will be earned, not financed

Buyout conditions have improved materially since the dislocation of 2022–2023. Debt markets are functioning again, financing costs have fallen, and transaction activity has recovered without a sharp re-inflation of entry multiples.


That said, the source of future returns has changed.


Over the past decade, buyout performance benefited disproportionately from falling interest rates and multiple expansion. Those tailwinds are unlikely to repeat. Financing costs remain structurally higher, and valuation multiples are elevated relative to long-term history.


We view this as a regime shift. Going forward, buyout returns will need to be driven primarily by:

  • operational improvement,

  • margin expansion,

  • pricing power, and

  • strategic repositioning.


This environment favours situations where control over execution is real rather than theoretical, including platforms, carve-outs, and businesses with clear operational levers. It also implies widening dispersion between managers with genuine operational capability and those still reliant on financial engineering.


Secondaries remain relevant, but selectivity is critical. While there is a sizeable backlog of ageing buyout assets, pricing has not yet adjusted to levels that imply widespread distress. Liquidity provision may become more attractive if volatility increases, but patience remains warranted.

Venture capital: early-stage discipline over late-stage momentum


Venture capital stands out as the most asymmetrically attractive segment of private markets heading into 2026, particularly at the early stage.


New company formation has rebounded, but into a capital-constrained environment. Institutional allocations remain well below peak levels, creating favourable conditions for investors with capital, access, and underwriting discipline.



We do not treat AI as a standalone theme. Instead, our focus is on whether it translates into tangible productivity gains—shorter development cycles, lower unit costs, or improved capital efficiency. As AI becomes embedded across industries, valuation premiums attached to generic “AI exposure” are likely to compress.


Late-stage venture and mega-rounds remain an area of caution. While exit conditions have improved, they remain selective rather than broad-based. By contrast, venture secondaries—often available at meaningful discounts—offer a compelling way to access seasoned assets with clearer performance signals and shorter duration risk.


Our emphasis remains on early tracking, disciplined entry pricing, and avoiding momentum-driven deployment.

Private credit: yield is not the same as value


Private credit has delivered attractive headline returns in recent years, but the risk-reward balance has deteriorated.


Credit spreads are tight across public and private markets, even as signs of late-cycle stress are beginning to emerge. Defaults remain contained, but distressed exchanges, payment-in-kind features, and rating downgrades are increasing.



In our view, current yields do not adequately compensate for late-cycle credit risk. The asset class is not structurally impaired, but the era of effortless yield is ending.


Where credit remains interesting is in:

  • distressed and special situations,

  • complex or transitional capital structures, and

  • scenarios where spread widening creates genuine mispricing.


By contrast, plain-vanilla direct lending offers limited upside with asymmetric downside risk in a slowdown.

Our view: precision over participation

The defining feature of private markets in 2026 is not a lack of opportunity, but a higher execution threshold.


We do not see this as an environment that rewards passive exposure or thematic chasing. Instead, it favours:

  • disciplined entry pricing,

  • operational control,

  • selective risk-taking, and

  • patience across vintages.


In late-cycle markets, returns are rarely given. They are built.

 
 
bottom of page