As investors increasingly incorporate private markets into their asset allocation frameworks, alternative assets have become a critical component of building balanced portfolios. Many of the core principles that apply in public markets are equally relevant in private markets. Notably, the rise of evergreen funds has significantly improved access to alternative investments, allowing a broader set of investors to pursue long-term, thematic, and systematic allocations without being constrained by the closed-end structures of traditional private funds.
Within this context, AI remains one of the most structurally compelling themes of the coming decade. Its impact extends far beyond large-cap technology companies,
reshaping the entire value chain. Private markets play a central role in this transformation: from frontier model development, to the infrastructure required to support hyperscale computing demand, to power generation, cooling systems, and ancillary services for data centers. Private equity, infrastructure, and private credit have all become integral participants in the data center ecosystem. In fact, hyperscale cloud providers are committing unprecedented levels of capital to support AI expansion, creating a broad set of structural opportunities across private markets.
The events of 2025 also served as a reminder that AI is a deeply disruptive technology whose development path is not linear. The emergence of DeepSeek earlier in the year is a case in point. This relatively young Chinese company successfully built
large-scale models at a fraction of the cost incurred by leading incumbents, directly exposing vulnerabilities in parts of the prevailing AI valuation framework. The episode also weighed on U.S. mega-cap technology stocks, where the “Magnificent 7” account for roughly 35% of the S&P 500 and trade at forward P/E multiples near 23x. This prompted investors to reassess whether portfolios overly concentrated in public markets would benefit from greater exposure to assets with lower correlation to listed equities.
Historically, private equity has delivered sustained alpha relative to public markets over long horizons. In 2024, global private equity buyout funds outperformed the S&P 500, and more than USD 200 billion in secondary market transactions suggested that private fund pricing had fallen below long-term median levels. However, the sharp rebound in public markets has delayed the normalization of the liquidity premium, implying that future excess returns will depend less on broad beta exposure and more on manager selection skill.
Data from 2025 further highlight this dynamic. Elevated volatility and macro uncertainty significantly raised the hurdle for IPOs, particularly for large, internationally exposed companies facing increasingly complex valuation environments. In contrast, smaller, domestically focused companies with lower valuations, clearer business models, and more mature value-creation pathways have become relatively more attractive. At the same time, declining interest rates are reducing private equity financing costs. Combined with a reopening IPO market, a non-recessionary economic backdrop, healthier capital markets, and a more supportive regulatory stance toward M&A, 2026 has the potential to mark a meaningful improvement in exit conditions. This could enable private funds to accelerate distributions to investors, even as inventories of portfolio companies remain elevated.
Real estate is also undergoing a phase of repricing and repair. As interest rates have retreated from their 2022 peaks, markets have continued to reassess the future rate path. The NCREIF commercial property credit index delivered its fourth consecutive quarter of positive returns in 2025. While performance has varied across subsectors,
many of the factors that previously drove repricing pressures are gradually fading, allowing valuations and fundamentals to realign.
In office real estate, investors are gaining greater clarity around the likely contours of long-term hybrid work models. In residential markets, certain regions continue to face localized oversupply, but in many top-tier cities, tighter zoning and permitting constraints have limited new construction, supporting resilience. Although markets broadly expect short-term rates to decline by roughly 50–75 basis points over the coming year, fiscal pressures suggest that long-term rates and mortgage costs may remain relatively elevated. This rate structure could suppress new development while creating more favorable return conditions for patient, long-term capital operating in supply-constrained environments.
Concerns about a potential bubble in private credit may be overstated. While some borrowers defaulted on large obligations in September, these cases appear more issuer-specific—often tied to the automotive sector—rather than indicative of systemic stress across private credit or leveraged loan markets. That said, as credit spreads continue to compress, market focus on credit quality is intensifying, and underwriting and pricing discipline are becoming increasingly important.
Looking ahead, uncertainty around the economic outlook is likely to persist. Although the probability of a recession in 2026 currently appears low, concerns about the growth trajectory have not fully dissipated. Private credit continues to offer a meaningful yield premium relative to public credit markets, but investors may need to adopt more active allocation approaches to manage potential downside risks. These may include greater use of diversified secondary investments, a focus on
investment-grade private credit, or selective exposure to distressed debt and special situations strategies to enhance portfolio resilience.
Over the course of 2025, hedge funds benefited from abundant opportunities created by event-driven volatility and pricing dislocations. Policy uncertainty and market inefficiencies provided ample “raw material” for alpha generation. At the same time, the growing number and faster trading pace of multi-strategy hedge funds have contributed to heightened global macro activity across asset classes. Today, diverging central bank policies, supply chain reconfiguration, and geopolitical risks continue to generate tradable dislocations across rates, currencies, and commodities, creating fertile ground for active strategies.