Private Markets Break Into Mainstream Investing | Morningstar Outlook

What's New

Morningstar's 2026 Global Outlook Report identifies private markets as the next frontier in portfolio construction, with semiliquid fund assets reaching nearly $450 billion through June 2025—up 77% since 2022—as new vehicle structures and regulatory support make private equity, credit, and real assets accessible to individual investors and retirement plans for the first time at scale.

Why It Matters

As the number of publicly listed US companies has roughly halved over the past 25 years while private fund assets have tripled to exceed $15 trillion globally, investors relying solely on public markets are missing a growing share of value creation—a gap that new fund structures and an executive order promoting private assets in retirement plans are now positioned to close.

Big Picture Drivers

• Shrinking public markets: The decline in listed companies means most investors lack exposure to earlier-stage companies and income-producing private credit that drive significant value creation.

• Structural innovation: Semiliquid vehicles—including interval funds, tender-offer funds, and nontraded BDCs—now offer perpetual access to private assets with periodic redemptions, solving the traditional lockup problem.

• Retirement system evolution: A flood of collective investment trusts is expected in 2026 to capture rising demand, representing one of the most significant design shifts since target-date funds emerged.

• Performance evidence: Morningstar research found private equity funds historically averaged around 16% pooled annual returns from 1998-2020, compared with roughly 11% for the S&P 500.

• Yield advantage: Private credit generates consistent floating-rate income with lower equity beta and diversification benefits relative to high-yield bonds and leveraged loans.

By The Numbers

• Global scale: Private fund AUM now exceeds $15 trillion worldwide, nearly tripling since 2015.

• Semiliquid surge: Assets in semiliquid structures reached approximately $450 billion through June 2025, growing 77% since 2022.

• Return potential: Adding 5-10% diversified private exposure to target-date glide paths could boost median lifetime returns by 20-40 basis points annually.

• Cost premium: Semiliquid funds charge 2-3x higher fees than traditional mutual funds when incentive fees are included.

• Historical outperformance: Private equity funds averaged 16% pooled annual returns (1998-2020) versus 11% for the S&P 500.

Key Trends to Watch

• Retirement plan adoption: CITs incorporating private assets will reshape defined contribution plans in 2026, aided by recent executive orders promoting their inclusion.

• Private credit dominance: Nontraded BDCs and interval funds are attracting most inflows as the most practical on-ramp, offering yield and structural liquidity that equity alternatives lack.

• Cost scrutiny: Higher fees—often 2-3x traditional funds when incentive fees are included—can easily offset performance advantages, requiring careful due diligence.

• Liquidity lessons: Cyclical outflows that stressed Blackstone Real Estate Income Trust and forced Bluerock Total Income+ to convert to a listed closed-end fund underscore that investors may not access capital during stressed markets.

The Wrap

Private markets represent a genuine portfolio evolution rather than a passing trend, with Morningstar simulations suggesting meaningful return enhancements from measured allocations—but investors must balance the opportunity against higher costs, limited transparency, and liquidity constraints that require partnering with steward-minded managers and maintaining realistic expectations about access during market stress.