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Private markets are entering a more selective phase, says Aberdeen Investments.
Private markets are entering a more selective phase, with returns increasingly driven by asset quality, income resilience, operational performance, and disciplined capital deployment rather than broad market recovery, according to Aberdeen Investments.
In its latest Private Markets House View, Aberdeen highlights the growing importance of manager selection, sector positioning, and diversification as performance dispersion continues to rise.
The House View is produced by Aberdeen’s Private Markets Solutions team, which manages the Global Private Markets fund as well as discretionary multi-strategy, evergreen private market mandates.
Nalaka de Silva, head of private markets solutions at Aberdeen Investments, said: “Private markets are entering a more selective phase. In this environment, fundamentals matter more than ever—from the quality of underlying assets and strength of income generation to disciplined capital deployment. Manager selection and strategy are becoming increasingly important drivers of outcomes.”
The latest outlook follows a period of stabilising valuations and improving financing conditions. However, global growth remains resilient yet uneven, while geopolitical risks and persistent inflation continue to shape the investment landscape.
Aberdeen’s analysis suggests that while deployment is expected to improve throughout 2026, competition for high-quality assets is intensifying. Consequently, returns are likely to be increasingly driven by operational value creation, sector selection, and structural growth themes rather than a broad market recovery.
Against a backdrop of slower but resilient growth, policy divergence, and elevated geopolitical uncertainty, Aberdeen believes private markets remain central to building resilient portfolios. However, selectivity will be critical as dispersion between assets, sectors, and strategies continues to widen.
Among sectors, infrastructure continues to benefit from structural tailwinds, particularly in energy transition and digital infrastructure. Capital deployment is concentrated in assets linked to electrification, data demand, and essential services. Despite macroeconomic uncertainty, global deal value reached approximately $327bn in Q1 2026, up 10% year-on-year, though with fewer transactions—indicating increasing concentration in larger, higher-quality deals.
Returns are now increasingly driven by cash income rather than valuation expansion, reflecting the impact of higher interest rates, according to Aberdeen. Regional dynamics are mixed: North America leads activity, especially in power generation and data centers, while Europe has softened, with deal value falling 27% year-on-year to $71.7bn after elevated renewable activity in 2024. Nevertheless, core infrastructure remains resilient, buoyed by demand for essential services and digital capacity.
Looking ahead, Aberdeen expects capital to stay focused on digital and energy transition assets, with increasing competition for high-quality opportunities and greater differentiation between leading and lagging segments. Returns are likely to depend increasingly on asset-level positioning and execution, with rising dispersion reinforcing the need for selectivity.
Aberdeen’s House View indicates an expected five-year internal rate of return (IRR) of around 9–11% for core infrastructure strategies, and 12–15% for core-plus strategies.
Meanwhile, “real estate is recovering, but unevenly”. Improving fundamentals are supported by greater clarity on rate outlook and constrained supply. Capital is increasingly concentrated in high‑quality assets and structurally supported sectors, sustaining rental growth and stabilizing returns. However, sentiment remains cautious amid geopolitical uncertainty and persistent inflation, keeping fundraising subdued and transaction volumes below previous-cycle levels.
Activity is improving gradually but remains selective. Global direct investment reached around $216bn in Q1, up 18% year-on-year, with recovery skewed toward higher-quality, more liquid assets. Regional performance is mixed:
Aberdeen expects returns to be driven less by broad cyclical recovery and more by income resilience, asset quality, and sector selection. Yield spreads remain supportive, with European all‑property spreads at about 150bps over bonds as of early 2026, though less attractive than at peak repricing. Performance is expected to remain polarized, with industrial and retail sectors supported by clearer cash-flow visibility, while residential and offices are more exposed to financing and market-specific risks. This underscores the importance of disciplined selection and execution.
Aberdeen’s House View estimates a five-year IRR of 6–8% for core real estate strategies and 10–15% for value-add strategies.
Private credit remains structurally supported as demand for capital outpaces supply, particularly as banks retrench. While some areas, especially parts of direct lending, “require closer scrutiny, other segments are backed by real assets or offer higher credit quality”. Market conditions are more lender‑friendly, with wider spreads and tighter underwriting supporting pricing discipline and deal terms, notably in more complex segments.
Recent activity has softened. In the US, direct lending totaled 199 deals and about $71bn in Q1 2026, while LBO activity fell to a multi‑year low, albeit with year-to-date volumes modestly ahead of the prior year on fewer, larger transactions. In Europe, direct lending volumes dropped 33% by volume and 24% by deal count year‑on‑year, reflecting slower execution and increased selectivity amid geopolitical volatility and sector-specific risks.
Aberdeen remains “selectively positive on private credit”, targeting five-year returns of around 8–12% for direct lending strategies and 6–8% for investment-grade private credit.
Private equity entered 2026 with residual momentum from late 2025, but activity softened as geopolitical uncertainty weighed on sentiment. Deal values declined in both major markets: European deal value fell 22.5% quarter‑on‑quarter, and US deal value dropped 18.3% to $260.2bn in Q1, reflecting a more cautious and selective environment. Public market volatility also contributed to a more measured pace of deployment.
“Despite this, underlying dynamics remain constructive”, said Aberdeen. Capital is increasingly focused on high‑quality assets and add‑on strategies, with add‑ons accounting for a decade-high 71.4% of European buyouts. Valuations have stabilised at elevated levels—buyout multiples at 12.6x globally and 11.9x in the US—though this reflects a narrower pool of higher-quality deals. LPs are also rotating toward liquidity solutions, with secondaries accounting for a record 19% of fundraising in Q1, highlighting demand for capital recycling.
Aberdeen’s outlook for private equity is “cautiously positive”. Deal activity is expected to recover gradually as financing conditions ease, but selectivity and valuation discipline will remain critical. Returns are becoming less reliant on multiple expansion and more dependent on operational value creation, with continued investor focus on technology‑enabled and AI‑linked businesses.
Aberdeen’s House View expects a five-year IRR of around 10–12% for buyout strategies and 12–15% for venture capital.
“We continue to see opportunities in structurally supported sectors such as digital infrastructure, the energy transition, and technology-enabled businesses. However, dispersion across sectors and assets is rising, reinforcing the need for a highly selective approach to capital allocation,” concluded de Silva
Japanese equities are outperforming all other major developed market regions despite currency headwinds.
Private markets are entering a more selective phase, says Aberdeen Investments.
Marketnode, an Asia-Pacific digital market infrastructure operator, acted as the tokenisation agent and digital paying agent.