Introduction
Private markets have delivered sustained growth over the past decade, with global AUM now approximately $15 trillion. While the slowdown of 2022–23 interrupted that momentum, the longer-term trajectory remains intact. Global private markets are still expected to grow at roughly 10% per year, approaching $25 trillion in AUM by 2029.1 After a rocky start last year, enthusiasm appears to have returned to private markets in 2026. Overall, global private markets saw $1.4 trillion in new flows in 2025, representing annual asset flow growth of over 10% compared to 2024.2
Viewed in oversimplified hindsight, we see private markets have moved from a period of steady pre-2019 growth, through the stimulus-fueled expansion of 2020–21, and into a post-2022 liquidity reset that continues to influence behavior today. The next phase is shaping up less as a return to the old playbook and more as a period of creative disruption—where the sudden shock to the system in 2022 has changed the trajectory and texture of the private market landscape and forced novel approaches to unexpected challenges. As markets scale, the laws of large numbers may temper headline growth rates, but they are also accelerating the mainstreaming of sectors, structures, and transaction types that were once considered niche. A challenging interest rate, inflation and exit environment has already begun to reshape long-held assumptions, particularly around liquidity, portfolio construction and asset selection.
These shifts are visible across asset classes. Venture capital has seen capital concentrate in a small number of super-scale companies, reducing the universe of viable monetization events. Secondary markets have moved to the center of investor focus, while continuation vehicles—including single-asset transactions—are becoming a permanent feature. Private credit has expanded beyond middle-market corporate lending into asset-based strategies, and in real estate, traditional sector leaders are giving way to alternative property types.
The next era of private markets growth is therefore likely to be defined less by scale alone, and more by expansion into new asset classes, greater reliance on secondary markets and the development of new pathways to liquidity.
Source: Preqin. Future of Alternatives 2029 Report. Estimates as of October 2025.
Private equity: A need to refocus on true value creation
Despite the uncertainties created by tariffs last year, PE deal activity has been robust. In 2025, deal value exceeded $1 trillion for only the second time in history, after reaching about $1.3 trillion in 2021. Megadeals drove this growth: 150 transactions over $1 billion totaled nearly $570 billion, surpassing 2021ʼs peak of $530 billion.3
After a brief decline in 2022 and 2023, global M&A and PE buyout multiples are back near the highs of 2021. Unsurprisingly, a look under the hood shows that these megadeals are skewing aggregate valuation figures higher. This highlights the need for diversification across the size spectrum as other areas may hold better value.4
Exit activity in PE is also beginning to show signs of recovery. Transaction volumes have improved, and distribution rates are trending higher off of recent lows. From an LP perspective, however, cash returns are still running well below historical norms.
While distributions have increased, they remain about half the levels investors became accustomed to in prior cycles. Moreover, a meaningful share of recent distributions has come from alternative liquidity sources rather than traditional exits. In 2025, roughly a quarter of total distribution yield was generated through mechanisms such as continuation vehicles, dividend recapitalizations and NAV loans.
Source: PitchBook. Q4 2025 Quantitative Perspectives. Data as of 9/30/2025.
Investment implications
In private equity, exit activity is picking up, but the recovery remains uneven. Private equity firms are deploying a broader mix of exit pathways to address a growing backlog of portfolio assets—leading us to believe secondary markets will continue to expand and offer increasing opportunities.
Venture capital: Selectivity is key as AI drives a resurgence
Venture capital activity in 2025 was shaped by AI exuberance and capital concentration in outsized deals. The result appears to be a K-shaped recovery: a narrow cohort of companies attracting seemingly insatiable investor demand, alongside a long tail of startups struggling to raise capital as liquidity constraints persist.
This dynamic points to a market increasingly defined by a handful of clear winners and a growing pool of potentially stranded assets. Investor conviction has become highly concentrated in AI and machine learning. In 2025, the sector accounted for roughly 65% of total venture deal value. Four of the five most valuable VC-backed companies over the past year were AI-focused, with funding rounds implying valuations ranging from approximately $75 billion to $500 billion.5 A look across the different VC funding stages reveals that AI and AI-related startups are almost universally commanding premium valuations versus their non-AI peers.
In this environment, selectivity is critical. While capital continues to flow into early-stage experimentation and ambitious moonshots, we believe competitive intensity will leave relatively few durable winners. Our focus is on mid- to late-stage companies with defensible moats and clear paths to scale. In AI, this favors foundational model providers and infrastructure-layer businesses that benefit from scale advantages, deep enterprise integration and high switching costs. By contrast, many application-layer startups remain vulnerable to rapid commoditization and competitive feature replication as the ecosystem matures.
Source: PitchBook. Q4 2025 NVCA Venture Monitor First Look Report. Data as of 12/31/2025.
Investment implications
In venture capital, the market is concentrating around a small number of large firms and AI-focused startups. This bifurcation means top-tier companies can still achieve exits, while a long tail of VC-backed companies may become stranded. To adapt to these new market dynamics, LPs should prioritize GPs who can drive true value creation and portfolios built on industry-leading companies with credible exit strategies.
Secondaries: Transformed from a tactical tool to a strategic core allocation
The secondaries landscape has entered a new phase of growth and maturation. Transaction volume hit a record $240 billion in 2025, a $78 billion and 48% increase from 2024. The growth reflects sustained momentum driven by rising demand for liquidity, a broader and more diverse seller base, and an expanding set of transaction types. What was once a niche segment has evolved into a core feature of private markets.
GP-led transactions continue to represent about half of overall activity, reinforcing their role as an integral component of the secondaries ecosystem. Recent inflows and elevated dry powder have supported a recovery in pricing following the dislocations of prior years. In our view, these dynamics underscore that secondaries are no longer a tactical solution for liquidity alone, but a durable allocation within private markets portfolios.
The scale of the opportunity in private market secondaries continues to expand. Looking only at traditional buyout, global private equity NAV now exceeds $4 trillion, reflecting years of strong capital deployment alongside persistently muted exit activity.6 The underlying imbalance is structural. It took more than a decade to accumulate today’s stock of unrealized NAV, and even with record secondary transaction volumes, the pace of liquidity remains insufficient to meaningfully reduce the backlog. Our analysis suggests that even if distribution rates recover to the high teens and portfolio values grow at a mid-single-digit pace, unrealized NAV is likely to continue rising through the end of the decade. As this overhang gradually works through the system, we see a multi-year window in which secondary buyers are likely to retain negotiating leverage, enabling access to high-quality portfolios at attractive pricing.
Source: Jefferies. 2026 Global Secondary Market Review. Data as of January 2026.
Investment implications
As the secondaries market scales and diversifies, it is evolving into a durable, strategic allocation within private markets. For allocators, the combination of expanding deal breadth and a growing wave of supply suggests a multi-year window to access high-quality assets with greater selectivity and negotiating leverage.
Private credit: Boom drives search to new markets
Private credit continues to expand its footprint, with non-bank lenders increasingly financing large, high-profile transactions once dominated by traditional banks. Industry estimates suggest private credit AUM could exceed $2.6 trillion by 2029, reflecting both continued inflows and a widening opportunity set. As the market has grown, private lenders have moved well beyond their roots in middle-market corporate loans and are increasingly active across a broader range of credit strategies.
The long-term addressable market is substantially larger. McKinsey estimates that the US private credit opportunity could exceed $30 trillion, driven primarily by asset-based finance and securitized credit.7 What began as a niche alternative to bank lending has evolved into a diversified ecosystem spanning consumer finance, corporate and commercial lending, real estate debt, infrastructure credit and specialty finance.
In our view, this evolution calls for a broader and more deliberate approach to private credit allocations. Many institutions have already established sizable exposures to upper-middle market, sponsor-backed direct lending, where competition has intensified and returns have become more compressed. We believe investors should increasingly look beyond these crowded segments toward areas such as the lower-middle market and asset-based lending, including real estate, infrastructure and equipment finance. These strategies can offer differentiated sources of return, but they also demand specialized underwriting, collateral expertise, and workout capabilities—particularly in more complex or stressed environments.
Source: Preqin. Future of Alternatives 2029. Estimates as of October 2025.
Investment implications
As private credit matures, returns are likely to be driven less by broad exposure to mainstream direct lending and more by selectivity across strategy, structure, and geography. With signs of credit stress emerging and fewer lender protections in large direct lending deals, expanding into less crowded segments—such as core middle-market lending, asset-based financing and certain global opportunities—may improve diversification and risk-adjusted outcomes.
Commercial real estate: A new, more nuanced cycle emerges
After a cumulative decline of nearly 20% from peak to trough between 2021 and 2023, CRE property values have stabilized. Total returns have been positive for six consecutive quarters through 4Q 2025, marking an important inflection point after several difficult years.8 Notably, the early stages of this recovery have been driven almost entirely by income rather than price appreciation—a sharp contrast to pre-pandemic periods.
Unlike previous recoveries that were broadly synchronized across property types and markets, this cycle is likely to be one of more meaningful divergence. Large portions of the office sector and segments of discretionary retail continue to face structurally weaker demand, elevated vacancy and rising obsolescence risk. In contrast, several sectors are benefiting from durable secular tailwinds. Housing (broadly), logistics, essential retail and health care real estate are supported by demographic shifts, a persistent housing shortage with affordability challenges, ongoing innovation and an increasingly geographically dispersed knowledge economy. Investor behavior is shifting, with capital increasingly targeting sectors that demonstrate long-term thematic growth—many of which can be categorized as alternative CRE sectors.
Sources: NCREIF, Clarion Partners Global Research. Data as of 9/30/2025.
Investment implications
Commercial real estate is entering a different kind of cycle than before, where outcomes are likely to diverge meaningfully by property type and geography. Certain alternative sectors—supported by structural demand and more attractive entry conditions—appear positioned to drive performance as the cycle evolves. For allocators, success will depend less on broad market exposure and more on a targeted approach to property selection that is supported by enduring long-term themes.
Access the full report
Our 2026 Private Markets Insights report highlights the different views across Franklin Templeton’s $250+ billion alternatives investment platform. Inside, we review the top trends across the private markets landscape and the best opportunities for each asset class in the year ahead.
Contact us
Contact us if you would like to speak to one of our relationship managers or consultant advisors.
Important Information
Sources and notes:
- Source: Preqin. Future of Alternatives 2029 Report. Estimates as of October 2025.
- Source: Convergence. December 2025 Capital Flows Report. Data as of 12/31/2025.
- Source: PitchBook. 2025 Annual US PE Breakdown Report. Data as of 12/31/2025.
- Source: PitchBook. 2025 Annual US PE Breakdown Report. Data as of 12/31/2025.
- Source: PitchBook. Q4 2025 NVCA Venture Monitor Report. Data as of 12/31/2025.
- Sources: Lexington estimates, Burgiss Manager Universe. Global Private Equity for Burgiss includes Generalist, VC, Expansion Capital and Buyout.
- Sources: PitchBook, McKinsey & Co. SIFMA. Private credit AUM as of 2024. Asset-based financing sizes based on US lending balance on bank and non-bank balance sheets as of 2023. Securitized products size based on SIFMA estimates as of 2022.
- Sources: Moody’s Analytics, NCREIF, Clarion Partners Global Research. Data as of 12/31/2025.
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager and the comments, opinions and analyses may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.
What are the risks?
All investments involve risk, including possible loss of principal. There is no guarantee that a strategy will meet its objective.
All investments involve risks, including possible loss of principal.
Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. An investment strategy focused primarily on privately held companies presents certain challenges and involves incremental risks as opposed to investments in public companies, such as dealing with the lack of available information about these companies as well as their general lack of liquidity Diversification does not guarantee a profit or protect against a loss.
Risks of investing in real estate investments include but are not limited to fluctuations in lease occupancy rates and operating expenses, variations in rental schedules, which in turn may be adversely affected by local, state, national or international economic conditions. Such conditions may be impacted by the supply and demand for real estate properties, zoning laws, rent control laws, real property taxes, the availability and costs of financing, and environmental laws. Furthermore, investments in real estate are also impacted by market disruptions caused by regional concerns, political upheaval, sovereign debt crises, and uninsured losses (generally from catastrophic events such as earthquakes, floods and wars). Investments in real estate related securities, such as asset-backed or mortgage-backed securities are subject to prepayment and extension risks.
An investment in private securities (such as private equity or private credit) or vehicles which invest in them, should be viewed as illiquid and may require a long-term commitment with no certainty of return. The value of and return on such investments will vary due to, among other things, changes in market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets and the financial condition of the issuers of the investments. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor's ability to dispose of them at a favorable time or price. Past performance does not guarantee future results.