Where value is emerging and fading across alternatives in 2026

Summary of asset class performance in CY25

Private equity secondaries surged to approximately $200 billion in transaction volume, with GP-led deals now representing 45% of the market - up from just 18% a decade ago¹. Exits picked up, and valuations declined from their 2021 peaks, creating compelling opportunities.

However, there have been growing concerns about private credit and rising defaults. While direct lending dominated flows in 2024 at nearly 60%, deal flow decelerated sharply to just 38% of capital raised in 2025, with spreads compressing significantly.² Consequently, we see more attractive opportunities in asset-based finance (ABF) and commercial real estate debt (CRE debt).

Real estate valuations dropped substantially from 2021 highs, with many properties now trading below replacement costs. The office sector continued to face headwinds, though select sectors, such as multifamily and industrial, look attractive.

What to expect in 2026 from the asset class?

We see three macro themes shaping 2026: broadening, steepening, and weakening.

Broadening reflects our conviction that investment opportunities are expanding across regions and asset classes. Steepening refers to yield curves: as the U.S. Federal Reserve continues to cut short-term rates, we expect investors to rotate out of cash into risk assets, including private equity, credit, and longer-duration fixed income. 

Weakening of the U.S. dollar, which we believe will benefit emerging market debt and equity.

Against a backdrop of elevated geopolitical risks, ongoing trade tariff uncertainty, and persistent inflation, we anticipate this will be a year where manager selection becomes absolutely critical. We expect a larger dispersion of returns between winners and losers.

What looks good? (where is the value/opportunity)

Private equity secondaries top our list. With institutions and family offices needing liquidity, secondaries offer built-in structural advantages - shortening the J-curve, returning capital faster, and providing diversification across vintage, geography, and strategy. GP-led continuation vehicles, particularly single-asset structures, have emerged as attractive exit alternatives given IPO market weakness.

Commercial real estate debt represents an attractive value. There's a $2.6 trillion "wall of debt" requiring refinancing between 2026-2029³. Regional banks have retreated post-Silicon Valley Bank collapse, creating a significant void. More realistic valuations are generating attractive risk-adjusted returns for lenders.

Real estate equity - specifically multi-family, industrial warehouse, senior housing, and necessity retail. These sectors benefit from powerful demographic tailwinds: Millennials and Gen-Z housing needs, baby boomer downsizing, historically low housing affordability, e-commerce growth, and reshoring trends.

Infrastructure, particularly digital infrastructure like data centres driven by AI demand, deglobalisation with impacts supply chains, decarbonisation to adjust to climate change, and demographics reflecting changing usage patterns. According to Pitchbook, infrastructure AUM is projected to reach $2.4 trillion by 2029.⁴

What to avoid? (risks)

Direct lending appears late-cycle. Spreads have compressed, deal flow has slowed dramatically, and there are growing concerns about increasing defaults. We prefer asset-based finance and commercial real estate debt, which offer more attractive risk-return profiles.

Office sector real estate equity continues to face structural challenges with ongoing valuation pressure and significant debt maturities. While this creates opportunities for debt investors, we remain cautious on equity exposure.

Broader risks include elevated geopolitical tensions, uncertain trade policy implications, and persistent inflation despite rate cuts. We also believe that there will be a significant difference in deploying capital today, with favourable valuations, versus 2020-2023 vintages with peak valuations and covenant-lite terms.

Example(s) of best in asset class opportunities

GP-led single-asset continuation vehicles in private equity secondaries exemplify our thesis. With traditional exit routes subdued, these vehicles provide liquidity to existing investors while maintaining exposure to high-conviction assets.

Commercial real estate targeting the multi-family refinancing needs represents compelling risk-adjusted returns in an undersupplied lending market.

Industrial warehouses benefit from the convergence of e-commerce acceleration, younger cohort consumption patterns, and manufacturing reshoring - a triple tailwind.

Data centres represent infrastructure at its most dynamic, with AI breakthroughs driving exponential data storage and processing demand.

Senior housing facilities - both independent and assisted living - address the inevitable aging of baby boomers, offering demographic-driven cash flow stability.

These opportunities benefit from strong fundamentals and structural factors. In an environment where manager selection matters more than ever, we believe that identifying specialists with deep sector expertise and experience managing capital, should separate the winners from losers. 

Please note, this wire is part of Livewire's Ultimate Investing Guide for 2026. The full guide is available for download here.