It was not a quiet start to 2026. The Strait of Hormuz closed, software assets sold off sharply, and then, against many expectations, markets reached record highs by April. For long-term investors, the noise matters less than what we believe these developments confirmed: private markets are undergoing a structural shift, and those who can look past short-term volatility are best positioned to act on it.
We believe four themes define where this structural shift is playing out and what the shift could mean for portfolio construction.
Theme 1: The rise of hard assets
Current data suggests the decade-long dominance of software and tech is giving way to hard assets. In the first quarter of 2026, utilities, energy, chemicals, and machinery made up 46% of buyout deal volumes, up from just 13% a year prior. The Utility & Energy sector recorded $52.8B in transactions in that period alone, nearly matching 2025's full-year total of $67.9B, itself the largest annual figure since 2007.
This rotation looks structural, not cyclical. AI infrastructure buildout is driving unprecedented power demand, and "old economy" sectors appear to be staging a sustained resurgence across both public and private markets, though the durability of this trend remains to be seen.
Theme 2: Selectivity matters more in private credit
Private credit markets remained healthy, but sector divergence intensified. Software loans traded down ~8% over the period, while the broader direct lending index fell less than 1.5%. The stress appears to be sector-specific, not systemic.
Private credit default rates ticked up to 2.73% in Q1 2026, still only modestly above the 2024–25 average of 2.21%. US direct lending volume rose 26% year-over-year to $74B, driven by larger deals.1
We believe this is a valuation story, not an operational one. In our experience managers who can distinguish sector-level stress from systemic risk, and stay patient, are finding better entry points.
Theme 3: The growing role of secondaries in portfolio construction
The secondary market recorded another year of record activity in 2025 (an estimated $205B in transactions2), and momentum continued into Q1 2026 with an estimated $40B in deal flow.
With dry powder at less than one year's supply and a $260B cumulative limited partner (LP) cash flow deficit since 2022, pricing has remained relatively stable, with perhaps some modest softening since peak prices in 2025. In our experience, deal flow has skewed toward younger, higher-quality assets as buyers continue to exercise greater selectivity.2
For wealth investors in evergreen strategies, increasing transaction activity and the crystallization of returns feeds directly into portfolio performance. Pricing appears to be stable, and in our experience, assets are skewing toward newer, higher-quality vintages as buyers exercise greater selectivity.2
Theme 4: What today's environment could mean for long-term diversification
Recent market volatility, from tech disruption to geopolitical shock to an unexpected equity rally, reinforced that risk can arrive from multiple directions simultaneously. Public markets have become increasingly dependent on a handful of stocks focused on AI infrastructure to drive returns. Strong performance has benefited public market investors but led to market concentration.
Private markets offer a different profile. Global buyouts are rotating toward "hard" industries and continue to outperform the S&P 493 (S&P 500 ex-Magnificent 7) by 498bps over five years and 241bps over ten.
Diversification across asset classes, sectors, geographies, and strategies isn't just a defensive posture, it's how long-term investors stay positioned to capture the next cycle of opportunity.
The bottom line
The start to 2026 was a reminder that private markets tend to reward investors who think in years, not quarters. The rotation into hard assets looks structural. The stress in software credit is real but appears contained. And for investors with exposure to private equity, the exit environment is the strongest it's been since 2021.
For long-term wealth investors, we believe this may be one of the more attractive entry points in recent memory, if you're selective about where you put capital to work.
1. Pitchbook LCD, April 2026.
2. Pacharbor Capital Group AlpInvest Proprietary Data, April 2026.
Want to go deeper? Read the Q2 2026 Global Private Markets Quarterly
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