Private Markets Brace for Deal Revival in 2026 | Federated Hermes Outlook

What's New

Federated Hermes' Private Markets 2026 Outlook reveals that deal activity is gaining positive momentum following interest rate normalization in H2 2025, positioning private asset classes to deliver greater capital distributions from older vintages—which should fuel new allocations toward specialist strategies rather than generalist, diversified approaches.

Why It Matters

After years of suppressed exits and fundraising headwinds, private markets stand at an inflection point where increased transaction volumes could finally unlock the distribution backlog plaguing institutional investors—while simultaneously reshaping capital flows toward wealth management channels and potentially DC pension schemes.

Big Picture Drivers

• Mega-trends: Digitisation, demographics, and deglobalisation continue reshaping investment theses across all private asset classes

• Capital rotation: Evergreen structures grew from $250bn (2022) to $450bn (mid-2025) in the US alone, signaling wealth management's expanding role

• Exit pressure: Private equity distributions as a percentage of NAV sit at historic lows—two-thirds below pre-pandemic norms

• Regulatory scrutiny: Direct lenders face heightened oversight on valuations, liquidity management, and transaction leverage

• Geopolitical realignment: Sovereignty concerns are driving onshoring of energy, data, and defence infrastructure across developed economies

By The Numbers

• $450bn: US evergreen structure AUM by mid-2025, up from $250bn in 2022

• 2x: Global buyout industry growth between 2019 and 2024

• 95%: UK national debt approaching this level of GDP—highest outside wartime

• 80%+: Share of UK real estate returns derived from income since 1986

Key Trends to Watch

• Private equity restructuring: GP-led secondaries and creative financing solutions will accelerate as sponsors clear the backlog of unsold assets accumulated during the valuation standoff.

• Private credit sweet spot: Lower interest rates combined with attractive yields create optimal conditions for direct lending, though lenders who pursued aggressive structures will face portfolio cleanup.

• Real estate debt resilience: Senior loans offer uncorrelated returns and positive day-one economics, providing diversification as direct property faces structural headwinds from hybrid work and AI disruption.

• Infrastructure electrification: Capital will concentrate on renewable energy and data sovereignty plays as geopolitical priorities reshape what were once purely economic investment decisions.

The Wrap

Selection becomes paramount in 2026: investors should favor disciplined managers with specialist strategies, clear exit pathways, and exposure to non-discretionary demand drivers—while avoiding generalist approaches that thrived in the era of cheap capital but lack differentiation in today's more discerning environment.