Over the past year, investors have grappled with a volatile backdrop shaped by geopolitical tensions, shifting economic regimes and structural transformation across energy, technology and demographics.
The conflict in Iran and across the Middle East has added a fresh layer of uncertainty, driving sharp moves in energy markets and reinforcing how quickly traditional asset allocations can be disrupted.
For long-term wealth investors, this is a reminder that resilience is not simply about short-term capital preservation – it is about building portfolios capable of delivering sustainable returns through persistent shocks and structural change.
Below we summarise five key takeaways from Schroders Capital’s latest Private Markets Investment Outlook Q2 2026, highlighting why we believe private market asset classes continue to stand out for their resilient returns potential in a market that faces persistent volatility and upheaval – and why selectivity remains critical.
1. Why private markets now – but not all strategies are equal
Private markets offer both structural and cyclical advantages that are particularly relevant in today’s environment. Structurally private markets are designed to focus on long-term value creation rather than short-term market sentiment. At the same time, these asset classes provide access to a broader and more specialised opportunity set – ranging from domestically oriented companies to assets with differentiated risk exposures and lower correlation to public markets. Cyclically, the picture is equally compelling. While public equities had reached record highs leading into the current crisis and credit spreads had tightened, many private market segments have experienced several years of subdued fundraising, investment and exit activity. This has created inefficiencies and attractive entry points, particularly in less crowded areas. However, resilience within private markets is far from uniform, with dispersion between strategies – and even within asset classes. Identifying structurally advantaged segments is key to capturing the potential of this evolving investment universe.- In private equity, small and mid-market buyouts have proven more resilient than large-cap transactions.
- In venture, early-stage opportunities remain attractive, while late-stage AI-driven investments carry concentration risk.
- In private debt, headline concerns around direct lending contrast with opportunities across broader credit alternatives.
- In real estate, the gap between prime and commodity assets continues to widen.
- In infrastructure, operational assets are increasingly scarce and valuable, while development-stage projects face more headwinds.
2. Private equity: uneven adjustments favour small and mid-market
Private equity remains in a period of recalibration following the post-pandemic boom. Fundraising and deal activity have slowed materially, and while there were early signs of recovery in late 2025, renewed geopolitical uncertainty may delay a broader rebound.
Yet this slowdown has created a more attractive entry environment – particularly in segments where capital is less concentrated.
Adjustments across the market have been uneven. Capital continues to be heavily skewed toward large funds and transactions, leaving small and mid-market buyouts comparatively undercapitalised and often more inefficient. This imbalance has translated into persistent valuation discounts – typically in the range of 20–40% relative to large-cap buyouts, and even wider versus public market equivalents.
These smaller companies also offer structural advantages. They tend to be more domestically focused, less exposed to global trade disruptions, and more reliant on operational value creation rather than financial engineering. Combined with generally lower leverage levels, this can enhance resilience in volatile environments.
Importantly, historical performance supports this thesis: small and mid-cap buyouts have outperformed large-cap funds over the long term – suggesting that entry pricing advantages and structural benefits can translate into stronger returns.
Beyond buyouts, other areas of private equity are evolving:
- Continuation vehicles have become a structural feature of the market, offering lower fees, faster liquidity and historically more predictable return profiles.
- Early-stage venture continues to benefit from diversified innovation at more reasonable valuations – in contrast to late-stage venture, where AI investments have elevated valuation and concentration risks.
3. Private debt and credit alternatives: look beyond the headlines
Private credit has come under increasing scrutiny, particularly in traditional direct lending. Concerns around sector concentration, valuation levels and liquidity – alongside redemption pressures in some funds – have dominated headlines.
However, these risks need to be put into context. Structural features such as gating mechanisms help limit forced selling, while the broader opportunity set within the wider universe of credit alternatives is far more diverse than the headlines suggest, with lower exposure to idiosyncratic risks.
Meanwhile, likely delays to rates normalisation – and even potential rates increases – coupled with wider regulatory changes to Basel III and Solvency II frameworks should be favourable to securitisation markets, though the full impact will take time to materialise.
For investors seeking stable income and diversification, this credit alternatives universe offers compelling opportunities, particularly in strategies backed by collateral or contractual cashflows. Several areas stand out:
- Asset-based finance (ABF) – ABF provides exposure to diversified pools of underlying assets – such as mortgages, auto loans or aircraft leases – typically across hundreds or thousands of borrowers. This granularity reduces reliance on individual issuers, while structural protections and floating-rate characteristics offer income resilience and downside mitigation.
- Commercial real estate (CRE) debt – Following a significant reset in property valuations, CRE debt now offers lending opportunities at lower bases. Structural inefficiencies – driven in part by regulatory constraints – are creating gaps in financing for development and transitional assets, particularly in sectors such as multi-family housing.
- Infrastructure debt – Infrastructure lending continues to provide stable, defensive income backed by essential assets. Inflation-linked revenues and regulated frameworks offer protection in an environment where inflation risks may re-emerge.
- Insurance-linked securities (ILS) – ILS remains a true diversifier, with returns driven by insured events rather than economic cycles. This provides valuable portfolio diversification, particularly in periods of geopolitical and macro uncertainty.
4. Infrastructure: long-term support; short-term pricing tailwinds
The recent energy shock has reinforced the strategic importance of energy security and, by extension, the long-term case for energy transition infrastructure investment.
However, the impact will not be immediate. As seen in previous crises, the acceleration of renewable investment tends to be policy-driven and materialises over time, rather than as an instant market response. Higher financing costs and supply chain pressures may also delay near-term deployment.
In the meantime, certain assets stand to benefit directly. Operational renewable infrastructure with merchant price exposure can capture higher power prices, providing a near-term earnings tailwind.
Beyond this, the broader investment case for infrastructure remains compelling. Structural demand is increasing, driven by electrification, AI and data centre expansion, while valuations have reset, creating more attractive entry points following the interest rate cycle. Meanwhile revenue models typically offer inflation protection, either through contractual indexation or indirect exposure to energy prices.
More broadly, regional dynamics are diverging. Europe and Asia remain central to renewable expansion, while US policy changes have introduced greater complexity. Across all markets, however, renewables continue to be among the most cost-effective source of new power generation, with battery storage emerging as a particularly attractive sub-sector.
5. Real estate: fresh headwinds, but still at an inflection point
After an extended period of repricing, global real estate markets are showing early signs of recovery. Transaction activity has begun to pick up, and pricing appears to be stabilising and even rising in key areas – suggesting that the asset class may be at an inflection point.
However, the renewed geopolitical backdrop introduces fresh risks. Higher energy prices could feed into inflation, potentially delaying interest rate cuts and weighing on the recovery.
Despite this, several factors continue to support the investment case:
- Valuations have reset significantly, creating more attractive entry points.
- Supply constraints remain strong, with high construction costs and limited financing slowing new development.
- Rental dynamics are improving, supported by “cost-push” inflation and limited supply.
Importantly, performance is becoming increasingly differentiated. The gap between high-quality, future-proofed assets and more commoditised properties has widened considerably.
In this environment, selectivity is critical. Sectors offering inflation protection and operational upside – such as logistics, residential, self-storage and hospitality – are particularly attractive. Assets with shorter lease durations or explicit inflation linkage can also provide near-term cashflow resilience.
The current environment is also creating a significant pipeline of recapitalisation and secondaries opportunities, as owners face refinancing challenges and seek new capital solutions. These situations can offer attractive entry points for investors with the ability to provide flexible capital.
Important Information For professional investors and advisers only. The material is not suitable for retail clients. We define “Professional Investors” as those who have the appropriate expertise and knowledge e.g. asset managers, distributors and financial intermediaries. Investment involves risk. This information is a marketing communication. The information contained herein is believed to be reliable. Where third-party data is referenced, it remains subject to the rights of the respective provider and must not be reproduced or used without prior consent. Any data has been sourced by us and is provided without any warranties of any kind. It should be independently verified before further publication or use. Third party data is owned or licenced by the data provider and may not be reproduced, extracted or used for any other purpose without the data provider’s consent. Neither we, nor the data provider, will have any liability in connection with the third party data. The material is not intended to provide, and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. Any references to securities, sectors, regions and/or countries are for illustrative purposes only. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any investments to rise or fall. Schroders has expressed its own views and opinions in this document, and these may change. This document may contain “forward-looking” information, such as forecasts or projections. Any forecasts stated in this document are not guaranteed and are provided for information purposes only. Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at https://www.schroders.com/en-za/za/intermediary/footer/privacy-policy/ or on request should you not have access to this webpage. For your security, communications may be recorded or monitored. Issued by Schroders Capital Management (Switzerland) AG (“SCAMAG”), part of Schroders Capital which refers to those subsidiaries and affiliates of Schroders plc that together comprise the private markets investment division of Schroders, an authorised financial services provider in South Africa FSP No: FSP 51576. Distributed by Schroders Investment Management Ltd registration number: 01893220 (Incorporated in England and Wales) which is authorised and regulated in the UK by the Financial Conduct Authority and an authorised financial services provider in South Africa FSP No: 48998.
