Private Markets Investment Outlook Q4 2025: Focus on resilience
Amid continued macroeconomic and geopolitical volatility, private markets benefit from a cyclical decoupling and diverse sources of risk that increase their relative attractiveness and can enhance portfolio resilience.
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On the face of things, the investment environment currently can appear benign. In recent months, public equities have broadly rallied, bond markets have stabilised, and expectations of further rate cuts in the US have fuelled investor optimism.
However, dark clouds are forming on the investment horizon. Concerns about the uncertainty and ripple effects of tariffs, uncertainty around central bank policies and inflationary risks – particularly in the US – as well as questions of fiscal sustainability, are being temporarily eclipsed by the current wave of valuation euphoria, especially surrounding areas such as artificial intelligence.
Yet this exuberance only adds to a growing list of risks, given the historical pattern of boom-and-bust valuation cycles following major technological breakthroughs. At the same time, geopolitical risks stemming from ongoing conflicts in Ukraine and the Middle East, alongside persistent uncertainty over US policy, remain elevated.
Diversification and return opportunities
Set against this backdrop, select private market strategies can offer a degree of insulation from some of these prevailing macroeconomic and market risks. The breadth and diversity of the asset classes provide exposure to differentiated sources of risk and return that, in combination, can enhance portfolio outcomes.
As an example, renewable infrastructure offers exposure to energy prices, which tend to show limited correlation with broader economic growth. In general, strategies such as infrastructure and real estate, including both equity and debt exposures, are typically backed by tangible assets, which can support a more resilient return profile during periods of elevated volatility.
Elsewhere, our research also shows that private equity – particularly in the lower-mid-market segment – has historically delivered its strongest relative outperformance during periods of heightened public market volatility.
At the same time, private markets more broadly are currently benefiting from a convergence of cyclical and structural tailwinds that are catalysing compelling opportunities for return generation and portfolio diversification. Structural tailwinds include the global energy transition and the broader technological revolution, which are reshaping industries and capital flows.
Cyclical drivers stem from the lower transaction activity and subdued fundraising over recent years that we have discussed previously. This has created favourable capital supply-and-demand dynamics that are supporting more attractive entry valuations and improved yield potential. Some areas, such as commercial real estate, have even corrected further, creating selective opportunities for disciplined investors.
Overall, and in contrast to public markets – where indices in many regions are at or near record highs and valuations appear stretched – we believe private markets currently offer attractive relative value across asset classes, with the notable exception of AI-related late-stage venture investments, which also show signs of exuberance.
Together, these factors not only increase the relative attractiveness of private markets but also strengthen their resilience by restoring healthier valuation levels and creating a more solid foundation for long-term growth. Bottom-up allocation applying high selectivity and targeting transformative value-add is crucial to capture the most attractive opportunities and drive sustainable long-term performance.
Focus on resilience
As we look ahead to 2026, resilience will remain the defining quality for successful investing. In an environment marked by ongoing macroeconomic uncertainty and geopolitical tension, maintaining a steady investment pace, prudent risk management and a focus on long-term value creation will be essential.
Private markets – with their long-term capital, active ownership approach and emphasis on bottom-up value generation – are well positioned to navigate this complexity and continue contributing meaningfully to diversified, resilient portfolios.
Taking into account the characteristics outlined above, we believe that the most attractive private market opportunities today are characterised by the following fundamental features:
- Balanced capital supply/demand, supporting attractive entry valuations and yields.
- Domestic exposures that help mitigate geopolitical and trade-related volatility.
- Access to differentiated risk premia via innovation, complexity, transformation, or market inefficiencies.
- Downside resilience through lower leverage or underlying asset backing.
- Reduced correlation to public markets through idiosyncratic drivers or uncorrelated risk exposures.
Private equity: Backing transformation and innovation
Private equity remains in a period of recalibration, with fundraising, deal activity and exits still below pre-2022 levels. This environment is creating pricing dislocations and reduced competition, particularly in less efficient segments where capital is scarce.
We see opportunities in strategies that back local champions, drive transformational growth and harness multi-polar innovation. Small and mid-sized buyouts, continuation vehicles and selective early-stage venture investments are especially well positioned to capture value as markets adjust - and as active ownership becomes an even greater driver of returns.
Private debt and credit alternatives: Income and protection
Private credit continues to show resilience, supported by solid corporate and consumer balance sheets, and higher risk premiums and yields that provide meaningful income potential.
Bank regulation–driven inefficiencies and lower commercial real estate valuations create attractive opportunities in real estate debt. Infrastructure debt also remains compelling, particularly where revenues are inflation-linked or backed by essential assets.
The focus on collateral, security and diversification supports opportunities in asset-based finance, while diversifying strategies such as insurance-linked securities offer resilient income and uncorrelated returns.
Infrastructure: Energy transition remains key, long-term mega-theme
The energy transition remains the leading global infrastructure theme, though investment momentum in the US is moderating amid a shifting policy landscape. The segment continues to offer attractive inflation linkage and stable, long-duration income.
In Europe and much of Asia, supportive policy frameworks and strong pipelines in wind and solar projects continue to drive investment activity. Beyond core renewables, higher-return strategies are emerging that take measured development risk and invest early in new technologies such as battery storage and green hydrogen that are powering the next phase of the energy transition.
Real estate: Repricing sets the stage for strong near-term vintages
After a period of price discovery, prospects for global real estate markets are much improved. Investment volumes remain below pre-2022 levels but are stabilising, rental income is being supported by low new supply and elevated construction costs, and there is evidence that transaction pricing is recovering.
Amid these dynamics, we believe the coming several years are shaping up to be strong vintages. We are particularly drawn to sectors where operational improvement can unlock alpha – such as logistics, living, storage formats and hospitality.
Private equity: Small is beautiful
Private equity remains in a period of recalibration, as fundraising, deal activity and exits continue to lag pre-2022 levels. Slower capital flows, fewer exit routes and prolonged holding periods have coincided with higher macro volatility, tighter financial conditions and policy uncertainty.
Yet these dynamics are also creating a more favourable environment for disciplined investors. Reduced competition, wider pricing dispersion and increased manager selectivity are laying the groundwork for stronger vintages ahead.
We see the most compelling opportunities emerging through three complementary levers that help investors navigate today’s challenges: local champions, transformative growth, and multi-polar innovation.
- Local champions are businesses with predominantly domestic revenue bases, reducing exposure to trade frictions, tariff uncertainty and shifting supply chains. Their earnings resilience and control over local value chains can help buffer portfolios against geopolitical shocks.
- Transformative growth involves investing in companies where complexity, operational improvement, or innovation create controllable value-creation paths that can offset broader market turbulence. In a more selective environment, operational value-add has become the key differentiator of returns.
- Multi-polar innovation captures the expanding global technology landscape. Breakthrough growth is now distributed across multiple hubs spanning the US, Europe, China, India and broader Asia-Pacific, diversifying opportunity and reducing reliance on single-market cycles.
These themes converge across three strategy areas: small- and mid-sized buyouts, continuation investments, and selective early-stage venture.
Small and mid-sized buyouts: The resilience engine
Small and mid-market buyouts (for us, enterprise values less than $1 billion) continue to anchor portfolio resilience. They combine more attractive entry valuations, lower leverage and greater operational agility than large-cap deals. Industry and Schroders Capital data show average purchase price multiples remain around 7.7x EV/EBITDA, over 40% below large-cap equivalents, creating significant headroom for value creation.
This segment’s defensive characteristics are further reinforced by its structure: over four-fifths of transaction value across private equity buyouts, the majority of which are small and mid-market deals, is now service-oriented – and portfolio companies typically generate a large share of revenues domestically.
This focus on essential, localised services reduces exposure to global trade and capital-market cycles. Exit routes also tend to be less dependent on IPO markets, with trade sales and sponsor-to-sponsor transactions offering steadier realisation pathways.
Continuation investments: Extending the value-creation runway
Continuation vehicles have become an increasingly important tool for private equity managers to extend ownership of high-conviction assets beyond traditional holding periods. By enabling managers to retain and further develop portfolio companies through their next stage of growth, these vehicles align long-term value creation with investor liquidity preferences.
The market for continuation strategies has expanded at roughly 27% annually since 2013, reflecting both cyclical and structural demand for longer-duration investments – and our forecasts show the segment could quadruple over the coming decade. In today’s muted exit environment, these structures are proving especially valuable, offering the potential for more predictable outcomes and faster time to liquidity – around 18 months shorter than conventional buyouts.
Continuation investment market growing – driven by structural factors
Past performance is not a guide to future performance and may not be repeated. Pitchbook, Preqin, Jefferies, Greenhill, Evercore, Lazard, PJT, Schroders Capital, 2025. Buyout distributions estimated averaging yearly values from Pitchbook and Preqin. Continuation investments exit value estimated using averaged yearly values reported by Jefferies, Greenhill, Evercore, Lazard and PJT, including only buyout and growth strategies globally and excluding structured transactions and unfunded commitments in continuation vehicles. Cyclical component calculated by correcting historical values for excess of buyouts plus continuation investments pool above historical secondary buyouts average of 36%. Forecasts and estimates may not be realized. The views shared are those of Schroders Capital and may not be verified.
Early-stage venture: Capturing distributed innovation
Early-stage venture capital offers exposure to the global, multi-polar innovation cycle, where technological breakthroughs are emerging from diverse regions and ecosystems. While valuation exuberance is particularly pronounced in late-stage AI investments, maintaining discipline is also essential in early-stage opportunities, where pricing can move quickly as competition intensifies. Disruptive innovation extends well beyond AI into biotechnology, fintech, climate technology and deep tech, offering a broad opportunity set.
We see particular potential in biotechnology, which has weathered several years of risk aversion and now offers more attractive entry valuations. Selective opportunities are also arising in LP-led venture secondaries, allowing investors to access high-quality portfolios at discounted pricing. Together, these strategies provide diversified exposure to the next generation of technological transformation.
Private debt and credit alternatives: Giving credit its due
Private credit continues to demonstrate resilience. Corporate and consumer balance sheets remain solid, supporting a healthy credit environment even amid tighter financial conditions. Governments, by contrast, have significantly increased leverage, helping to keep base yields elevated. As the focus of policymakers shifts from inflation to employment, monetary authorities – led by the Federal Reserve – are likely to adopt a more accommodative stance.
This environment supports borrowers that finance at short-term rates, including smaller businesses and commercial real estate developers, and points to a relatively contained default outlook across much of the credit spectrum.
Real estate debt: Repricing creates opportunity
After several years of adjustment, signs of stabilisation are emerging in commercial real estate. The steep price declines following the 2021–2022 peaks have largely run their course, with US property values broadly flat over the past year and select industrial and retail segments showing renewed strength. From this lower base, and as policy rates begin to ease, transaction activity and demand for financing are gradually recovering.
A meaningful gap remains in both debt and equity capital provision, creating attractive opportunities for private lenders. Development, construction and heavy refurbishment bridge loans currently offer some of the highest return potential in real assets. With more conservative underwriting, improved collateral coverage and disciplined risk management, this segment is well positioned to benefit as activity normalises.
Infrastructure debt: The defensive income engine
Infrastructure debt continues to serve as a reliable source of stable, defensive income. With steady capital demand and tangible asset backing, it provides a secure foundation for long-term credit portfolios.
Many infrastructure projects benefit from inflation-linked revenues or regulated frameworks, which help preserve real yields even if inflation pressures re-emerge. In this environment, infrastructure debt remains one of the most effective ways to combine yield stability with downside protection.
Asset-based finance: Diversification through scale and structure
As investor demand for income endures, diversification has become increasingly important. Asset-backed securities and broader asset-based finance offer access to large, scalable markets where inefficiencies support attractive spreads. Specialty and consumer finance, in particular, continue to deliver compelling income opportunities supported by healthy consumer fundamentals and strong housing wealth.
These diversified pools of exposure also provide structural protection and lower correlation to traditional credit markets. As policy rates begin to moderate, several asset-based finance segments – including collateralised loan obligations (CLOs) – are likely to benefit from improved refinancing conditions and stronger secondary market liquidity.
Insurance-linked securities: A true diversifier
Insurance-linked securities (ILS) remain a distinctive and resilient source of return within private credit. Their performance is driven by insured event outcomes rather than economic growth, offering valuable diversification from market and credit cycles.
Current valuations are attractive, as limited loss activity in recent years has enabled repricing and strong expected returns. In a broader credit context, ILS continues to provide an important stabilising force through uncorrelated performance and consistent income.
Private premium is higher, but opportunity varies
Past performance is not a guide to future performance. Source: Schroders Capital, Bloomberg, CS, Swiss Re, Bank of America as of September 2025. The views and opinions shared are those of the Schroders Capital Securitized Products & Asset-Based Finance Team and are subject to change. Shown for illustrative purposes and should not be viewed as investment guidance.
Infrastructure equity: Renewables focus on Europe and Asia, but don’t count out the US
Infrastructure equity continues to demonstrate resilience, with the energy transition segment standing out as one of the most compelling long-term investment themes. In an uncertain macroeconomic environment, renewable infrastructure offers strong inflation linkage, secure income characteristics and portfolio diversification through distinct risk premia such as energy prices.
We continue to see a steady flow of opportunities driven by the global decarbonisation agenda and growing recognition of the investment potential in energy transition assets. According to the Schroders Global Investor Insights Survey 2025, 86% of investors are already allocating to the energy transition – or plan to do so within the next year – and more than three-quarters cite long-term return potential as a key motivation.
After two years of muted transaction activity, we are also observing early signs of renewed momentum in broader infrastructure deal flow across both traditional and diversified segments.
Renewable energy: Benefiting from decarbonisation and energy security
Global efforts to decarbonise, combined with heightened energy security concerns stemming from the war in Ukraine and ongoing geopolitical tension in the Middle East, continue to support renewable energy build-out. At the same time, cost-of-living pressures have reinforced the importance of energy affordability, with renewables now representing the most cost-effective source of new electricity generation in many regions.
Attractive opportunities in Europe and Asia
We currently see the strongest investment opportunities in Europe and Asia, where governments continue to strengthen policy frameworks and accelerate commitments to renewable energy. In Europe alone, renewable infrastructure represents a base of roughly €600 billion, accounting for nearly half of infrastructure transactions. By the early 2030s, we expect to more than double to around €1.3 trillion, making renewables and energy-transition infrastructure the dominant asset class within the sector.
Emerging technologies such as hydrogen, heat pumps, battery storage and electric vehicle charging infrastructure are critical to achieving deep decarbonisation in sectors such as transport, heating and heavy industry. In parallel, the rapid expansion of data centres and digital infrastructure – driven by AI and cloud computing – continues to boost demand for clean, reliable power sources.
The US: Slower but steady transition
In the US, recent fiscal and budget legislation will phase out federal tax credits for renewables on a faster timeline, likely triggering a near-term surge in project activity as developers seek to secure incentives before they expire. Thereafter, we expect a moderation – but not a halt – in new wind and solar development.
The inherent cost competitiveness of renewables and ongoing demand for new generating capacity, reflecting powerful demand from areas such as data centres, should continue to underpin the long-term growth of US renewable infrastructure.
A buyer’s market creates opportunities
The renewables market has shifted decisively toward a buyer’s market. The recalibration of return expectations – driven by higher interest rates and reduced dry powder – has opened a capital supply-demand gap, creating attractive entry points for long-term investors. Core and Core+ strategies remain well positioned, with equity return expectations up by over 200 basis points since early 2023.
We favour strategies focused on high-quality operating and construction-phase assets that offer strong cashflow visibility and the potential for enhanced returns through active management. Selectively, higher-return opportunities exist in emerging areas such as hydrogen, though we remain cautious toward early-stage developments.
The valuation dislocation between listed and unlisted assets has also spurred a wave of take-private transactions. As interest rates gradually normalise – albeit more slowly than expected – a gradual re-rating of listed infrastructure assets appears underway.
Infrastructure asset returns have materially re-rated
Past performance is not a guide to future performance. Source: Listed Greencoat fund quarterly reports Q1 2015 - Q1 2025 (Total Return Index NAV, (NAV + Reinvested Dividends). Past performance is not a reliable indicator of future results. There is no guarantee that this rate trajectory will remain the same in the near future. Discount rate refers to UK wind assets.
Real Estate: 2025 and 2026 expected to be compelling vintages
After an extended period of price discovery and uneven adjustment, evidence is mounting that the global real estate market has reached an inflection point. Our proprietary valuation framework indicates a growing share of attractively priced opportunities across multiple sectors and regions, setting the stage for what we believe will be compelling investment vintages in 2025 and 2026.
Operating fundamentals remain resilient despite a subdued macroeconomic outlook. New supply is constrained by elevated construction and financing costs, which continue to act as natural stabilisers for rents. As pricing stabilises and financing conditions gradually improve, we expect new deployments in this environment to deliver above-average performance over the medium term.
Tight supply conditions remain supportive
Although rental growth expectations remain modest, structural undersupply continues to underpin operating markets. Higher construction costs and reduced debt availability have significantly slowed new project pipelines across most regions. This limited supply should help offset softer near-term demand.
We also see early evidence of “cost-push” effects, where rising construction expenses drive rental increases to maintain development viability. Should global growth regain momentum, these dynamics could allow well-positioned assets to deliver real income growth. Tight supply conditions, coupled with rebased valuations, are laying the foundation for performance recovery across many markets.
Capital markets: Pricing has likely bottomed
Investment activity remains subdued overall, with transaction volumes below historical averages in the first half of 2025. While geopolitical events in the second quarter temporarily dampened sentiment, transaction pricing and valuations have shown modest but broad-based improvement. Variation across sectors and regions remains, yet the trend is clearly positive.
Evidence of transaction prices recovering following falls across sectors
Sources: Green Street Advisors, MSCI, Schroders Capital, September 2025.
Our valuation framework points to increasing opportunity across sectors and geographies, particularly in industrial and logistics where market fundamentals are strongest. We also identify selective value in living, retail and operational real estate segments that now offer pricing dislocations relative to long-term performance potential. Overall, the market backdrop suggests that disciplined deployment in 2025–2026 should benefit from favourable entry points and rising cash-on-cash yields.
Continuation and recapitalisation opportunities
The current environment is also creating compelling continuation and recapitalisation opportunities across real estate platforms, portfolios and funds. These involve providing flexible capital solutions to established management teams facing time or capital constraints in optimising asset value.
Favourable cyclical and structural dynamics – particularly the need to address sustainability requirements and operational complexity – are further fuelling these opportunities. Working collaboratively with existing owners remains key to unlocking value and ensuring that viable assets can continue to deliver long-term performance despite tighter capital markets.
Focus on asset quality and micro location
We maintain a neutral stance across sectors but expect asset-specific and location-specific factors to play a much greater role in determining performance than in previous cycles. This is already visible in the industrial and logistics market, where evolving supply chains, e-commerce penetration and geopolitical factors are creating a more uneven pattern of tenant demand.
The retail sector, after years of underperformance, has surprised to the upside, supported by improved operating models and resilient consumer demand. Meanwhile, living and operational segments – such as rental housing, student accommodation, and healthcare – continue to demonstrate strong fundamentals, offering inflation pass-through and lower economic sensitivity.
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