Private markets offer selective diversification opportunities in markets dealing with growing geopolitical risks and the dominant AI narrative, according to Schroders Capital chief investment officer Nils Rode.
In the firm's Q4 2026 Private Markets Investment Outlook, Rode noted further escalation in the conflicts in the Middle East and Ukraine are casting a shadow over markets, while returns are dominated by the AI-driven capital expenditure cycle.
"At the same time, the partial decoupling and uneven recovery of private markets continues to present selective opportunities to enhance overall portfolio diversification and resilience," he added.
Below, Rode explains why private markets can be an attractive asset class against this backdrop.
Diversification remains a key foundation
Because capital committed to private markets is typically locked up for three to five years or more, Rode said private asset portfolios need to withstand several different macro outcomes, rather than being built around today's conditions alone.
Listed stock market indices keep setting records, he added, yet a handful of technology and AI-related names account for much of that gain. This pattern has pushed up concentration risk despite bolstering headline returns.
But in private markets, buyouts, infrastructure equity and real estate have cooled broadly since peaking in 2021, Rode said. This slowdown has widened the gap with listed market performance and opened up selective entry points.
"We continue to favour areas characterised by disciplined valuations, operational value creation, diversified income streams and strong underlying demand drivers," he said.
Private equity
Private equity's rebound has been patchy: deal and exit activity dropped to its lowest point since the third quarter of 2021, even though fundraising picked up in the second quarter of 2026 and total deal value held up. Rode said the stronger headline figures mask weak underlying momentum, with distributions to investors still running low.
Because of this unevenness, he continued, manager and deal selection matters more than ever. Schroders Capital's preference sits with smaller and mid-sized buyouts, where less capital is chasing deals, purchase prices sit below large-cap levels and value creation rests more on improving businesses operationally than on financial structuring.
Secondary market transactions hit a record in the first half of 2026 and Rode said continuation vehicles are a mainstream private equity tool now, rather than a stopgap for managers struggling to exit positions. For investors, he added, secondaries can shorten the typical holding period and, in some cases, offer steadier returns than primary fund commitments.
Private debt and credit alternatives
Rode said US credit conditions in 2026 appear sound overall: the labour market has stayed firm, companies are still reporting solid earnings and households have spent more than forecast. However, he cautioned that AI-linked capital spending is now a double-edged factor, lifting growth but also feeding inflation, while narrower spreads give lenders less cushion against mistakes.
"Once again, that makes selection increasingly important. Strong demand for income strategies from investors has compressed risk premia across parts of the market, while sector concentration and increasingly complex links between borrowers, tenants and suppliers are making risks harder to assess," he said.
Rode pointed to three areas where collateral, contractual income or structural protections provide an extra layer of safety. Asset-based finance, he said, combines a decent yield with shorter loan terms and limited duration risk, since exposure is spread across many different pools of underlying assets rather than concentrated in single borrowers.
Infrastructure debt, meanwhile, tends to sit apart from swings in the corporate credit cycle, buoyed by long-running trends such as electrification, energy security and digital infrastructure build-out. Insurance-linked securities are a differentiated source of diversification, as returns are driven mainly by natural catastrophe risk rather than economic or credit conditions.
Infrastructure
Energy transition assets are still benefiting from strong structural tailwinds: energy security concerns, electrification and growing power demand continue to underpin long-term investment. Rode added that the rise of AI and the data centres it requires is placing extra strain on electricity networks.
"Increasingly, the constraint is not producing electricity but moving it to where it is needed," he said, citing grid bottlenecks, interconnection delays and limited system flexibility as the main challenges.
As a result, Rode argued, the opportunity is widening out from renewable power generation into the networks, storage and flexible-generation assets needed to deliver that electricity to where it's used.
Real estate
Rode described the global property market's recovery as "slow and uneven". Deal activity picked up during the first half of 2026, notably in the US and across Europe, and values held broadly steady or edged up, though he said elevated borrowing costs, economic uncertainty and a fresh bout of inflation are still holding the market back.
"Liquidity also remains constrained. Private real estate fundraising is subdued and, although distributions have improved, they remain well below historical averages," he added. "For investors able to deploy capital, that scarcity is creating selective entry points at rebased valuations."
Rode pointed to three supportive forces for real estate, the first being high construction and financing costs keeping new supply in check across many markets.
Meanwhile, rents are still climbing for well-placed properties where tenant demand holds firm, he wrote. Because capital remains scarce, he added, investors able to supply liquidity have more opportunities to back repositioning or recapitalisation deals.
"The recovery, however, is increasingly asset-specific. That puts greater weight on location, asset quality, sustainability credentials and the ability to capture rental growth as drivers of long-term value," he finished.
"We continue to favour sectors where structural demand and operational improvement can support income, including urban logistics, living and storage."