Private Markets Outlook 2026: Credit, Secondaries & Real Estate

Executive Summary & Key Takeaways

• Valuation Reset: The 2026 vintage offers a rare entry point as valuations across private equity and real estate have reset meaningfully from 2021 highs.
• The Rise of Secondaries: With limited partners seeking liquidity, the secondary market is projected to approach $200 billion in volume, offering a mitigated J-curve and immediate diversification.
• Credit & Yields: A steepening yield curve and the "refinancing wall" in commercial real estate are creating high-income opportunities for private credit managers beyond traditional direct lending.

Why the 2026 Vintage Favors Disciplined Capital

Private market valuations have reset meaningfully from the highs of 2021, effectively shifting the balance of power. Investors deploying capital today can negotiate better pricing, tighter terms, and stronger covenants. This creates a highly attractive entry point across the private markets ecosystem as we move into 2026.

This opportunity is driven by structure rather than optimism. Lower valuations, improving liquidity conditions, and shifting macro forces have created a backdrop where fresh capital can work harder than in recent vintages.

The Macro Backdrop Heading Into 2026

Three macro themes broadening, steepening, and weakening will shape how capital is allocated and rewarded in the coming year.

Broadening Opportunities Beyond a Single Market

While US equities have dominated global returns due to superior profitability and liquidity, the landscape is shifting. We expect earnings growth in emerging markets to rival the United States over the next 12 months. Europe is also positioned for improvement, supported by easing monetary and fiscal policies. This broadening enables investors to diversify return drivers rather than relying on a single source of growth.

Steepening Yield Curves and the Return of Duration

As the Federal Reserve and other central banks cut rates, yield curves are likely to steepen. Falling short-term rates reduce the appeal of cash, while demand for long-term capital remains strong due to AI investment, energy infrastructure, and government borrowing.

This dynamic encourages a move out of cash and into longer-duration assets. Private credit and private real estate benefit significantly here, offering income and diversification while managing reinvestment risk.

A Weakening US Dollar

The US dollar’s decline may not be complete. Rate cuts aimed at a softening labor market and shifting global portfolio flows could pressure the dollar further. Historically, dollar weakness benefits emerging market debt and equity. Importantly, it reinforces the broadening of returns across regions and sectors, strengthening the case for diversified portfolios.

Private Equity Trends | The Strategic Rise of Secondaries

Private Equity (PE) is currently facing a significant distribution challenge. In the years leading up to 2021, firms distributed approximately 20% annually to limited partners. In the current environment, annual distribution rates have declined to roughly 10%.

This liquidity pressure has converted the secondary market from a niche option into a primary release valve for institutional investors.

The Liquidity Crunch and Allocation Pressure

According to a 2025 Preqin survey, allocation pressure is widespread among institutional investors:

• 45% report being overweight private equity.
• 30% report overweight positions in real estate, private debt, and infrastructure.

Primary vs. Secondary | A Structural Advantage

For investors, secondaries offer a distinct structural advantage over traditional primary fund commitments. By acquiring seasoned assets, investors can mitigate the "J-Curve" effect (negative returns in early years) and accelerate capital return.

Explosive Market Growth

The secondary market is poised to approach US$200 billion in transaction volume in 2025. The composition of these deals is also evolving rapidly:

• GP-Led Transactions: Increased from 18% of volume in 2015 to an expected 45% in 2025.
• Continuation Vehicles: Single-asset continuation vehicles now account for ~40% of GP-led volume, surpassing US$30 billion in 2024.

Growth Equity and The Return of Selectivity

Valuations across the broader private equity ecosystem have declined significantly from 2021 peaks. Combined with a modest improvement in exit activity, this creates an attractive environment for deploying growth capital.

• Artificial Intelligence: Impact extends beyond tech into financial services, energy, and biotech, enhancing efficiency and productivity.
• Defense Technology: The US defense industry has consolidated from 50 major contractors to just five. The modern security landscapedefined by cyber, space, and tech competitionis driving renewed private capital into defense technology innovation.

Read our recent post on the Defense Technology Opportunity here "Defense Technology Opportunity"

Private Credit Outlook | Opportunities Beyond Direct Lending

Private credit has evolved into a broad asset class, but manager selection and sub-asset class allocation are critical in 2026. While direct lending remains the largest segment, deal flow slowed materially in 2025, leading to spread compression.

We see the most attractive risk-adjusted returns shifting toward Asset-Based Finance and Commercial Real Estate Debt.

Asset-Based Finance (ABF)

As competition intensifies in corporate lending, Asset-Based Finance offers exposure to contractual cash flows secured by tangible assets. This mitigates downside risk through collateralization. Key areas include:

• Consumer Receivables (Auto loans, student loans)
• Equipment Leasing
• Intellectual Property Royalties

The Commercial Real Estate (CRE) Refinancing Wall

Commercial real estate debt represents a high-conviction opportunity due to a massive approaching maturity wall. Following the retreat of regional banks in 2023, private credit managers are uniquely positioned to fill the funding gap.

The Scale of the Opportunity

• Total CRE Debt Outstanding: ~US$6.1 Trillion
• Refinancing Need (2026–2029): ~US$2.6 Trillion

While valuation stress is acute in office and retail properties (with declines up to 40%), this allows disciplined lenders to reset terms. Managers can now negotiate lower leverage points, wider spreads, and stricter covenants.

Covenant Quality | The Size Advantage

Not all credit protections are created equal. Data suggests that smaller deal sizes currently offer superior protections for lenders compared to the large-cap market.

This disparity underscores the importance of targeting the lower-middle market where lender protections remain robust.

Real Estate Valuation Reset

Real estate valuations have declined substantially, driven by higher interest rates. Many properties now trade below replacement cost.

Sectors of Resilience

While the office sector faces headwinds, other segments are performing well due to durable demand drivers:

1. Multi-family: Housing affordability pressures.
2. Industrial Warehouse: E-commerce growth and supply-chain reshoring.
3. Data Centers: AI and digital connectivity demand.

Infrastructure and Long-Term Structural Demand

Infrastructure has expanded beyond traditional transportation to include digital connectivity, energy systems, and water treatment.

• The Funding Gap: Total required investment is projected at ~US$94 trillion by 2040, implying a US$15 trillion shortfall.
• Deal Activity: In 2024, nearly 2,000 infrastructure transactions totaled over US$311 billion.
• Key Drivers: AI-related energy demand and the digital transition are fueling interest in modern infrastructure assets.

Conclusion | Manager Selection is Essential

The last several years have seen rapid transitions between market regimes. In this environment, diversification across private market strategies is essential.

Not all segments will perform equally.

• In Private Equity focus on Secondaries.
• In Private Credit look toward asset-based finance and CRE debt.
• In Real Estate prioritize sector selection over broad exposure.

Ultimately, outcomes will depend on manager quality. Investors should favor experienced managers with a proven ability to deploy capital across multiple cycles. For investors willing to be disciplined, 2026 represents a superior vintage for long-term value creation.

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