Secondaries and CRE Debt Lead Private Markets in 2026 | Franklin Templeton Outlook

What's New

Franklin Templeton's 2026 Private Markets Outlook identifies private equity secondaries, commercial real estate debt, and infrastructure as the most attractive opportunities as valuations reset from 2021 peaks, with the secondary market poised to reach $200 billion in transactions while a $2.6 trillion wall of CRE debt requiring refinancing through 2029 creates compelling entry points for private credit managers to negotiate favorable terms amid bank retrenchment.

Why It Matters

With roughly 45% of institutional investors now overweight private equity and PE distributions plummeting from 20% annually pre-2021 to approximately 10% today, the liquidity crunch is reshaping capital allocation strategies and elevating manager selection from a nice-to-have to the defining factor separating winners from laggards in an environment where return dispersion is expected to widen significantly.

Big Picture Drivers

• Valuation reset: Private market pricing has corrected substantially from 2021 highs, with real estate properties now available below replacement costs and secondary assets trading at 14-30% discounts to NAV across strategies

• Bank disintermediation: Regional banks' reluctance to lend post-SVB collapse has created persistent funding gaps in CRE and middle-market lending that private credit managers are positioned to fill

• Distribution drought: PE distribution rates have collapsed by nearly half, forcing institutions to develop formal secondary programs and seek liquidity solutions outside traditional exit channels

• Infrastructure demand: A $15 trillion global infrastructure investment gap through 2040, combined with AI-driven data center expansion and energy transition requirements, is creating multi-decade tailwinds

• Yield curve steepening: Falling short-term rates should incentivize investors to move out of cash into risk assets including private credit and real estate

By The Numbers

• $200bn: Projected secondary market transaction volume for 2025, a fivefold increase since 2015

• $2.6tn: Commercial real estate debt requiring refinancing between 2026-2029

• $4.9tn: Forecast global private credit AUM by 2029, with evergreen funds comprising nearly half

• 45%: Share of GP-led transactions in secondaries, up from 18% in 2015

• 52.15%: Direct lending recovery rate, above the 47.78% long-term average since 2007

Key Trends to Watch

• Secondaries maturation: Single-asset continuation vehicles now account for 40% of GP-led volume and have grown sixfold since 2018, with nearly 70% of 2025 transactions coming from first-time issuers.

• Private credit diversification: Asset-based finance and CRE debt are emerging as early-cycle opportunities with superior risk-adjusted returns as direct lending spreads compress from 636 to 514 basis points.

• Real estate sector rotation: Allocations are shifting decisively away from office and traditional retail toward industrial warehouse, multi-family, senior housing, and necessity retail anchored by grocery.

• Digital infrastructure surge: Data center investments reached $50 billion in 2024 versus $11 billion in 2020, driven by AI computing demands and cloud expansion across all regions.

The Wrap

The 2021-era playbook of broad private market exposure no longer applies—success in 2026 requires surgical precision in strategy selection, favoring secondaries for built-in structural advantages, CRE debt for the refinancing wall opportunity, and infrastructure for secular growth themes, while avoiding compressed direct lending spreads and distressed office exposure, all while prioritizing managers with demonstrated experience navigating multiple market cycles.

Read Full Report: 2026 Private Markets Outlook

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