Private Markets Playbook

Five trends – what’s moving markets? Private credit Venture capital Private equity Private real estate Private infrastructure

Private markets are entering a new phase of the investment cycle.

Many of the themes that attracted significant capital over the past decade, including digital infrastructure and supply chain transformation, are now shifting from early-stage investment into large-scale buildout.

As opportunities mature and capital concentrations deepen, differentiation across managers widens, with returns increasingly driven by execution, operational capability, and the ability to translate structural demand into durable cash flows.

Investors need to navigate a more complex backdrop shaped by several competing forces.

Five trends: what’s moving markets?

In 2026, investors must navigate maturing investment propositions shaped by divergent forces that create a delicate balancing act.

These include:

  • Power hungry data centers for AI investments with constrained power supply and grid capacity
  • Government fiscal support for re-industrialization objectives with government fiscal strains
  • Greater options for private markets exits in a fragmenting cross-border environment
  • Renewed appetite for portfolio company growth with focus on cash-flow resilience

For fiduciaries, success will be about understanding these offsetting forces, how they shape economies and selecting partners who can capitalize on the opportunities.  

To help investors we have identified five trends we believe will help shape private markets in 2026 and beyond.

2026 should witness the maturing of cheaper Covid era debt for companies and looming debt maturities, with greater focus on how refinanced capital is reinvested. Companies with operating leverage from automation, throughput, and reliability should have access to capital markets funding and maintain refinancing flexibility. In a higher cost of capital regime, private credit and structured equity financing of companies with a capability-derived competitive advantage are good investment options for investors. 

Supply chains are shifting from prioritizing global optimization to built-in resilience. Tariffs and export controls across different political regimes have generated high market volatility. For fiduciaries, the goal should be to look beyond short-term noise and build portfolios for the new world under construction. This includes enhancing cash flow durability via businesses able to localize sourcing, automate workflows, and bring process know-how to complex problems. Strategies focused on advanced manufacturing, embedding intelligence into physical industries, improving end-to-end logistics, and scaling intelligent energy systems will continue to be secularly attractive.  

If AI is the productivity engine, then power delivery, interconnection, and secure data infrastructure are the industrial base. 2026 and beyond will involve funding and scaling solutions to overcome bottlenecks. We believe investors can win long-term by targeting contracted, scarce real assets which expand "compute capacity" reliably (i.e., grid upgrades, powered land, equipment finance, etc.) with strategies focused on execution and access to reliable power. Beyond the simple need for AI, base industrial assets can also enable innovation to scale.

The growth in efficient rotation of capital in private markets, from mature assets into new capacity, will continue in 2026. Secondary transactions, continuation vehicles, and green shoots in tokenization and unitization will help reduce illiquidity, as traditional liquidity channels shift and M&A/IPO windows are uneven. Illiquid asset transfer is increasingly a portfolio management tool, rendering high quality liquidity sourcing a product, and not just a transaction.  

Funding for security as a growth sector will accelerate in 2026.  The market’s focus is shifting from “innovative ideas” to the ability to “field systems at scale.” Specialist skills and domain expertise will be required to underwrite regulatory complexity, address changes in procurement, and mitigate concentration risks. The long-term winners will ultimately include those who can translate national priorities into investable, repeatable cash flows without compromising governance, fiduciary principles, or underwriting discipline.

Asset class playbook

Private credit

After several years of strong inflows and supportive credit conditions, early signs of stress are emerging in parts of the private credit market, underscoring the need for greater selectivity

A new credit cycle: A meaningful share of portfolios were built in 2021 and 2022, when capital was cheap, multiples were high, and retail inflows were deployed quickly. That vintage is now rolling into a very different environment. Some issuers refinanced early and extended 2025 maturities amid strong private credit demand, but others now face refinancing at materially higher rates. With floating rate coupons already pressuring free cash flow and typical five-to-seven-year maturities approaching, refinancing is shifting from optional to effectively mandatory, marking the transition into a new phase of the credit cycle.

Sentiment shift: Investor sentiment toward private credit has become cautious, particularly among retail investors who accessed the asset class through U.S. business development companies (BDCs) and interval funds. Some large funds are receiving redemptions above gating levels, potentially reinforcing negative sentiment in certain investment vehicles such as private BDCs. However, we see this as more of an issue for those specific funds than reflecting the broader private credit market. Outside of the highest-quality listed BDCs, most now trade at sizable discounts to NAV. Investor concerns center around lender exposure to software, historically a large segment in private credit given the perceived stability of Software as a Service (“SaaS”) revenues.

Markets remain resilient: While redemption activity has increased, headlines often overlook important offsetting dynamics. Many funds experiencing redemptions are simultaneously attracting subscriptions at a similar or even faster pace, suggesting retail flows have not yet shifted decisively into net outflows. Moreover, most institutional investors access private credit through closed-end vehicles, many of which retain substantial dry powder and remain active lenders offering some backstop to borrowers, but likely at higher spreads than were available in 2025.

Selectivity matters: Selectivity will be critical in 2026 and beyond, as periods of changing market conditions tend to favor elite managers. In direct lending, we recommend caution — particularly in the U.S., where the market is more exposed to retail flow dynamics that are currently trending unfavorably. We prefer managers with private equity, restructuring capabilities and a true ownership mindset — those able to actively manage businesses and preserve value in downside scenarios, rather than relying solely on initial underwriting assumptions and forced liquidation in stressed environments. We also favor European direct lending, where relative value appears more attractive and markets are less sensitive to retail investor sentiment.

Renewables, office real estate opportunities: The most compelling private credit opportunities often arise where capital is scarce and risk is already well recognized. Providing financing to home improvement businesses in segments with limited competition can generate attractive, above-market returns. While widespread distress remains limited, targeted opportunities are emerging in select stressed areas. Two stand out today. First, the U.S. renewables sector, which has been pressured by shifts in policy expectations but continues to offer refinancing and restructuring opportunities for fundamentally viable businesses, often with limited investor competition. Second, office real estate credit, where open-end equity funds face increasing pressure to transact and valuations remain well below prior peaks, creating the potential for more attractive forward-looking returns when paired with conservative underwriting.

Redemption activity spiked in 2H25

Redemption requests as a percentage of NAV in large BDCs

Chart showing redemption requests across several asset managers

Source: Robert A. Stranger & Company, Inc. as of 12/31/2025.

How to play it

In the current environment, private credit allocations should emphasize quality, flexibility, and manager skill over broad exposure. Exposure to U.S. direct lending should be approached selectively, with European direct lending offering a relatively more attractive entry point, supported by better pricing and lower sensitivity to retail sentiment. Allocations should also tilt toward strategies that provide capital where it is scarce, including opportunistic special situations, and stressed credit approaches, where competition is limited and risk is more appropriately compensated. Overall, portfolios should favor diversification across strategies, careful pacing of commitments, and managers with the ability to adapt as credit conditions evolve.

Venture capital

Venture capital enters 2026 with momentum returning, and recovery is concentrated

Investment activity recovering: After two years of reset, global venture equity funding rebounded to roughly $469 billion in 2025 (vs. ~$320 billion in 2024), while deal count fell. This reinforces that “more dollars” does not mean “broader risk appetite”, with the market rewarding scale and category leadership.

Premium companies, premium valuations: The concentration of venture investment is evident in that two-thirds of funding in 2025 involved mega-rounds of over $100 million primarily in later-stage transactions. The median global deal size at ~$3.3 million, suggests the “typical” startup round has not inflated nearly as dramatically as the headline funding totals imply. This bifurcation is a key feature of the current cycle: standout companies can raise premium valuations, while the long tail competes in a more price-sensitive market. 

The AI engine: AI remains the primary engine of the rebound, accounting for ~$226 billion of funding in 2025 — up from ~$114 billion in 2024 — and representing a record ~48% of global venture capital. We anticipate that in the next phase value will become increasingly concentrated in the ownership of workflows.  This shift places a premium on distribution, depth of integration, and proprietary data advantages. At the same time, AI is expanding venture beyond purely digital outcomes. Robotics funding reached ~$40.7 billion in 2025, underscoring growing conviction in “physical AI” as the next frontier. For portfolios, this broadens the opportunity set into automation-heavy sectors where defensibility is anchored in real-world deployment, specialized data, safety and verification requirements, and longer product cycles.

Volatility remains: Transformative technologies often bring periods of over-extrapolation and correction; the key is not predicting the timing of turning points, but underwriting fundamentals and avoiding concentration to a single theme.

Annual equity funding & deals

Venture equity funding rebounds, but deal counts fall

Table showing annual equity funding and deals

Source: CB Insights

How to play it

We believe venture capital remains an essential source of long-term growth and innovation exposure, but the market is pricing “obvious AI” aggressively. We prefer portfolios designed to capture dispersion, backing differentiated managers, emphasizing earlier entry points, and maintaining pacing discipline to reduce the risk of buying crowded parts of the cycle.

Venture capital can play a strategic role in a diversified portfolio, but today’s opportunity demands discipline. With funding increasingly concentrated in mega-rounds and AI, we favor consistent pacing across vintages diversification by stage (with an early-stage and selective mid-stage tilt), and careful liquidity planning. We also see merit in pairing primary commitments with secondaries to manage duration and dispersion while targeting managers with repeatable sourcing advantages beyond headline AI rounds.

Private equity

After years of slowdown in exits, we see increasing potential for return of capital, with future returns likely to favor investments that drive operational change and harness new technologies

Return of capital: Private equity exit activity as share of invested capital peaked in 2021, while new investments from ever larger pools of capital raised continued apace. As investors focus on return of capital, there is a great push for exits. Private equity has increasingly deployed secondary sales for exits, and traditional exit paths of M&A/IPO and trade sale, continue in parallel. We expect 2026 will increase the number and aggregate value of exits through traditional channels and secondaries.   

Operational skills: A recent era of rising interest rates has capped the return generation from financial engineering. For portfolio managers, the ability to improve core operational capabilities is all the more critical to drive improvements, efficiencies, growth, and returns in private equity. 

AI, automation, and adaptability: As part of this operational focus, AI, automation, and adaptability will be critical to any company’s success. The accessibility of AI and automation across both hardware and software, and their broad adoptability from the C-suite to interns, will shape winning strategies across business sectors for at least the next five years.

Evergreen funds: Evergreen funds across private market segments are gaining traction. These funds can provide truly long-term capital and patient investments, and improved liquidity mechanisms for investors compared to traditional closed-end funds. We expect this trend to grow significantly with investments from retail and institutional investors alike. 

Deal trends: investments by exit type

Declining deal trends reduced long-held investment distributions, reducing demand for new fundraising from general partners

Chart illustrating private equity deal trends, with investments by exist type

Source: Preqin 'Private Equity in 2026'

How to play it

In a private markets portfolio, private equity fulfills the role of a long-term growth driver while providing portfolio liquidity as exits recover. Emphasis should be placed on managers with mature assets and credible realization pipelines, alongside new allocations to strategies focused on operational value creation through AI, automation, and efficiency gains. Evergreen structures can help smooth cash flows, while a selective U.S. and global mix diversify macro, political, and sector-specific risks.

Private real estate

Despite near-term uncertainty, long-term structural forces continue to shape real estate demand and fundamentals

Structural growth: Demographic trends, including aging populations and ongoing housing affordability challenges are supporting sustained demand for housing and healthcare-related properties at a time when new construction has slowed materially. Construction starts across many property types are down sharply, and anticipated deliveries in 2026 have been reduced, limiting future supply and strengthening the outlook for rent growth. At the same time, advances in technology and the rapid adoption of AI are accelerating demand for data centers and modern logistics facilities, as businesses require greater digital infrastructure, faster data processing, and more efficient supply chains. These sectors benefit from both structural demand and high barriers to entry, as much of the existing assets now trade below replacement cost.

Recovery with dispersion: Private real estate is entering a recovery phase, but progress remains uneven across sectors and markets. Apartments, industrial, data centers, and necessity-based retail are stabilizing quickly, supported by resilient tenant demand, falling construction activity, and reduced competitive supply. In contrast, recovery has been more uneven in office, select hospitality, and older retail assets, where elevated vacancies, capital expenditure needs, and refinancing pressures continue to weigh on performance. With construction starts down significantly and future supply constrained, high-quality assets are better positioned to capture improving cash flows, while weaker assets face longer recovery paths. As a result, return dispersion is widening, and asset quality and active management are increasingly important to navigating this stage of the cycle.

Public–private convergence: Public real estate adjusted more quickly to higher interest rates, while private markets lagged due to lower transaction activity and slower price discovery. As transaction volumes recover and capital markets reopen, private market valuations are becoming clearer and more closely aligned with public market pricing, signaling renewed convergence. Public real estate offers liquidity, transparency, and earlier insight into shifts in fundamentals such as supply, demand, and capital costs. Private real estate, by contrast, provides access to long-term income streams and the ability to enhance value through leasing, redevelopment, and operational improvements, particularly in assets trading below replacement cost. Together, public and private real estate reflect the same underlying fundamentals and offer complementary ways to capture returns across the real estate cycle.

Low cap rate spreads: Despite recent repricing, current cap rate spreads across major real estate sectors remain well below their 15-year averages. This suggests that valuations have adjusted but not fully normalized. Going forward, returns are more likely to come from rental income and owning high-quality properties than from prices rising across the board, making selectivity and active management important.

Spreads remain below long-term average

Current cap rate spreads across major real estate sectors remain well below their 15-year averages

Spreads remain below long-term average

Source: Sector NAVs: Green Street Advisors. Cap Rates: NCREIF Property Index, Federal Reserve Economics and Russell Investments. Data through December 31, 2025.

How to play it

Real estate remains an essential component of a total portfolio solution, offering inflation protection through rental income and meaningful diversification benefits. Within a real estate allocation, blending public and private exposures allows investors to navigate market dispersion, access a broader opportunity set, and capture long-term structural growth themes. This integrated approach can help smooth returns over time while positioning portfolios to benefit from both near-term market signals and long-term fundamentals.

Private infrastructure

An expanding universe of opportunities continues to generate high demand for investment capital, while focus remains on stable returns amid risks of supply-demand shifts and geopolitics

Expanding opportunity set: Private infrastructure opportunities that traditionally focused on transport and power themes continue to expand to include social and digital. Newer infrastructure investments have included data centers of all sizes, industrial assets, medical facilities, infrastructure surrounding such facilities, and service providers, with investments structured to match stable cash flows and inflation pass through where possible.

All-encompassing digital: High demand for AI compute capacity in data centers, and power consumption to support them is expected to continue. This ecosystem presents an attractive setup for infrastructure investments surrounding data center facilities, power, terrestrial connectivity and mobile connectivity. The underlying trends in the digital sector should continue, with greater necessity for experienced manager skills to structure downside protection and mitigate any shift in demand, supply or changing fortunes of tech companies. 

Well-paced supply of capital: Private capital raised for infrastructure continues to scale new heights, with investors increasing allocations to real assets. The infrastructure investment opportunity set continues to expand with the incorporation of newer segments and continued transfer of existing assets from the public sector. Private infrastructure investments should facilitate one of the largest global investment cycles since the dawn of the internet era.

Data centers fastest growing demand driver

Projected global electricity demand growth split by demand drivers

Data centres are fastest growing demand driver

Source: Chart Bloomberg NEF now

How to play it

The growth of modern infrastructure is accelerating. Capital can be deployed today in data centers and supporting assets, social sectors, and in power. These opportunities range across the infrastructure risk-reward spectrum and are attractive today in the core-plus and value-add risk profiles. Infrastructure's inflation-hedging properties and its importance to the global economy make it a growing strategic allocation in investor portfolios.

Select client questions

Private real estate is entering a recovery phase with widening dispersion. Sectors supported by structural demand — such as apartments, logistics, healthcare, and data centers — are stabilizing more quickly due to constrained new supply and strong long-term fundamentals. In contrast, office and certain legacy retail segments remain more challenged, creating selective credit and repositioning opportunities.

Private infrastructure continues to expand beyond traditional transport and power into digital infrastructure, social infrastructure, and energy systems. Data centers and power assets remain among the fastest-growing demand drivers globally. Investors seeking inflation protection, long-duration income, and diversification benefits may find opportunities across core-plus and value-add strategies, particularly where assets are aligned with long-term structural themes such as AI, electrification, and supply chain resilience.

Private markets in 2026 are entering a more mature phase of the investment cycle. After years of capital formation and expansion, the focus is shifting from financial engineering and exploration to operational execution, refinancing discipline, and monetization. Investors are navigating higher capital costs, refinancing pressures, geopolitical fragmentation, and increased dispersion across sectors and managers.

The most attractive opportunities are emerging in strategies that emphasize cash-flow resilience, operational value creation, infrastructure supporting AI and energy systems, and selective credit deployment where capital is scarce. Success in this environment will depend less on broad beta exposure and more on manager skill, sector specialization, and disciplined portfolio construction.

Private credit remains attractive, but selectivity is critical in 2026. A meaningful portion of loans originated in 2021–2022 now face refinancing in a higher interest rate environment, marking a new phase of the credit cycle. While parts of the market — particularly U.S. direct lending exposed to retail flows — face sentiment pressure, institutional capital remains active and well-positioned.

Opportunities are emerging in European direct lending, opportunistic credit, renewables financing, and select stressed real estate credit where competition is limited and spreads are compensating investors appropriately. The key is prioritizing experienced managers with restructuring capabilities, downside protection, and the ability to actively manage assets through volatility.

Private markets in 2026 are entering a more mature phase of the investment cycle. After years of capital formation and expansion, the focus is shifting from financial engineering and exploration to operational execution, refinancing discipline, and monetization. Investors are navigating higher capital costs, refinancing pressures, geopolitical fragmentation, and increased dispersion across sectors and managers.

The most attractive opportunities are emerging in strategies that emphasize cash-flow resilience, operational value creation, infrastructure supporting AI and energy systems, and selective credit deployment where capital is scarce. Success in this environment will depend less on broad beta exposure and more on manager skill, sector specialization, and disciplined portfolio construction.

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.

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