Private markets are no longer the cherry on top

The future of private markets

Private markets have shifted from peripheral allocations to a central influence on investment decision‑making. Expansion across strategies, new fund structures, and evolving liquidity expectations are reshaping how investors access and use private assets. As these changes take hold, a pivotal question follows: What does the future of the private market look like?

It used to be the case that private market investments were regarded as an alternative to traditional asset classes, among investors. Something to consider as an add-on, as a cherry on top. In that respect, the likes of private equity, private credit and real estate were viewed in isolation rather than from a total portfolio allocation perspective.

This has changed in recent times, however. As private markets continue to grow, investors and advisors have come to realise that these assets should no longer be viewed as alternatives - but rather as an integral part of portfolio construction. The discussion has shifted to the contrast between public and private investments — with venture capital, growth equity, and buyout strategies on the private side, and public equities on the other. The same distinction applies to private credit, infrastructure, and real estate.

This recognition that private markets have a central role to play in portfolio construction is likely to support even more growth in private market assets over the coming decade.

Expect to see increased numbers of model portfolio solutions incorporating public and private assets being offered by private banks and RIAs.

It has, of course, helped enormously that regulatory initiatives — such as the European Long‑Term Investment Fund (ELTIF) regime, now in its second iteration — have come to pass. Fund innovations, led by the increasingly popular ‘evergreen’ open‑ended structure, have also played a major role. This has accelerated the wider adoption of illiquid assets in private wealth portfolios and even proven to be a useful tactical portfolio tool for large, sophisticated allocators and family offices, driven largely by the ability to invest fully on day one, and therefore avoid intermittent capital calls.

One fact that often gets brought up in debating the rationale for ‘why’ invest in private equity is that some 87% of U.S. companies with revenues in excess of $100 million are privately held. In other words, if investors want to ensure they are exposed to the innovation engine of economic growth, they need to hold private markets investments, especially as more companies are choosing to stay private for longer and resist the urge to IPO.

Liquidity stress in private credit

For some investors, recent developments in private credit have raised health questions, to continue the food analogy. This is a market that has grown at pace to $3 trillion by the start of 2025 and is forecast to reach $5 trillion by 2029. Is this a risky sugar rush or a sustainable sweetener? With well-documented media coverage of Blue Owl Capital, and the demise of First Brands and Tricolor Auto Group, suddenly, private credit - specifically direct lending where managers underwrite loans to companies based on expected cash flows - has a perception problem.

This is intrinsically a liquidity issue, or to put another way, an asset:liability mismatch issue.

Funds sold to individual investors typically offer monthly subscriptions and quarterly redemptions, often limited to 5% of NAV. If too many investors try to redeem at once, redemptions cannot be fulfilled, and gating is implemented. This is common practice to protect investors’ interests, yet it has caused widespread negative media coverage. In the case of Blue Owl, the loans they held in Blue Owl Capital Corp II, a $1.6 billion BDC targeted at U.S. retail investors, were sold at close to par; so this wasn’t a subprime mortgage 2.0 scenario. To meet its liquidity needs and uphold its decision to permanently halt redemptions, Blue Owl sold a $1.4 billion loan portfolio to honour redemptions of up to 30%. Despite this, public markets remain unconvinced; shares in Blue Owl’s publicly traded BDC (OBDC) are trading at around a 26% discount to NAV.

The worry is that these events could signal a wider, more systemic issue with private credit. In particular, its exposure to highly leveraged software technology companies. Rating agencies, such as Morningstar DBRS, maintain a negative outlook on private credit. Citing margin compression, rising leverage and a growing share of borrowers operating under covenant relief and constrained liquidity.

William Barrett of Reach Capital told CNBC via email:

“It makes sense for our industry to now offer our products to retail but we should probably test it first with HNWI [high net worth individuals] and mass-affluent segments rather than making a 180-degree switch to mass retail.”

Direct lending is only one aspect of private credit, and problems will emerge due to the rapid growth in recent years. Recent events have shown that investor education is crucial when selling semi-liquid products. It will require much more guidance and likely additional stress tests to make individual investors comfortable with, including private market assets in their portfolios. Firms like Pinebridge and Apollo are very bullish on direct lending in 2026.

In a recent outlook, Pinebridge wrote:

“We foresee a favourable environment for direct lending in 2026 and beyond, with increased volume allowing for more selective investment decisions.”

Apollo expects Europe’s direct lending market to experience a record 2026, driven by bank retrenchment and high demand for flexible financing. The firm notes that with non-bank lending at just 12% in Europe vs. 75% in the U.S., the region is ripe for private credit expansion.

Europe’s private infrastructure “super‑cycle”

EU reforms, Basel III, and geopolitical shifts are creating tailwinds that support capital flows into European private markets. Indeed, private infrastructure in Europe is experiencing a "super-cycle", with assets under management growing from roughly €91 billion in 2014 to €487 billion by 2025, according to McKinsey, driven by energy transition, digital transformation, and government funding gaps.

This growth, fueled by strong demand for AI and energy security infrastructure, is expected to make Europe the fastest-growing private infrastructure market, with AUM projected to exceed €1.1 trillion by 2030. Private capital will have an integral role to play in funding large-scale projects across Europe, rather than be a supplement to state funding.

Invest Europe reported that European infrastructure funds raised €265 billion from 2020 to H1 2025, including €41 billion in the first half of 2025. That figure nearly matches the €42 billion raised in all of 2024. This ultimately indicates a significant step up in investor appetite for private infrastructure funds.

With sizeable pools of private capital ready and willing to invest in critical infrastructure, Eric de Montgolfier, CEO of Invest Europe commented:

“private infrastructure investment can address pressing climate and technology challenges, and quite literally build a path for European growth and competitiveness”.

The private markets group CVC believe several factors could help extend Europe’s lead as the most active private infrastructure deal market globally. Chief among them is heightened policy uncertainty, which may prompt more investors to redirect capital toward Europe at a time when many are seeking to increase their non‑U.S. exposures.

The private markets group CVC noted in a report published last September:

“As secular trends in digitalisation and decarbonisation accelerate, the mid-market, especially in Europe, offers fertile ground for differentiated returns”.

Sustainability is also a key growth driver, with Europe maintaining an edge over other regions. The commitment to invest in sustainability and clean energy sources gives Europe a green premium in the eyes of investors keen to back renewable projects, which are less of a priority in markets like the U.S.

Infrastructure funds played a key role in helping private markets raise $1.3 trillion in 2025.

This puts the market on an equal footing to 2024, in terms of year-on-year growth. And if, as many expect, private equity rekindles some of its magic and increases the number of deals and exits, it should give investors further reason to keep the faith. Bain’s global private equity report 2026 showed that lower interest rates helped the value of buyout deals to increase by 44% to $904 billion in 2025. In addition, exit value climbed to $717 billion.

Can private equity open the exit?

For the year ahead, 55% of GPs expect more exits to close, helping to address what has been a shortfall in liquidity expectations. Referred to as distributions to paid-in capital (DPI) - the money investors get back from realised assets - the last few years have remained below 15% in terms of net asset value. As Bain’s report starkly illustrates, global private equity is holding 32,000 unsold companies, with an aggregate value of $3.8 trillion - that’s a lot of invested capital left to return!

One permanent feature of private equity that is likely to continue to rise to prominence is the use of continuation vehicles by GPs. Ultimately enabling them to hold on to quality assets, and restructure them in new funds, while giving investors the option to sell or to roll.

As a secondary market liquidity tool, continuation vehicles have become commonplace. According to Alter Domus, they represent around a fifth of private equity distributions to LPs and make the point that asset managers like Schroders see CVs potentially replacing sponsor-to-sponsor secondary buyouts in some scenarios.

As private markets mature further, private credit and infrastructure secondary markets will likewise follow in the steps of private equity, further supporting the way investors hold these important illiquid asset classes in their portfolios.

Discover the future of private markets at FundForum 2026, including the brand new Private Markets Summit.