Private markets enter more selective phase as fundamentals take centre stage, says Aberdeen
08 July 2026• Aberdeen indicates expected five-year internal rate of return (IRR) of 9–11% for core infrastructure strategies and 12–15% for core-plus strategies
• Real estate expected return targets stand at 6–8% for core strategies and 10–15% for value-add strategies
• Aberdeen remains selectively positive on private credit, with expected five-year returns of around 8–12% for direct lending strategies and 6–8% for investment grade private credit
• Cautiously constructive on private equity as deal activity recovers selectively, with returns increasingly driven by operational value creation
Private markets are entering a more selective phase with returns increasingly driven by asset quality, income resilience, operational performance and disciplined rather than broad market recovery, says Aberdeen Investments.
Aberdeen Investments has published its latest Private Markets House View, highlighting how manager selection, sector positioning and diversification are becoming increasingly important as performance dispersion rises.
The House View is produced by Aberdeen’s Private Markets Solutions, the team who run Aberdeen’s Global Private Markets Fund, as well as discretionary multi-strategy, evergreen private market mandates.
Nalaka de Silva, Head of Private Markets Solutions at Aberdeen Investments, said: “Private markets are entering a more selective phase. In this environment, fundamentals matter more than ever, from the quality of the underlying assets and the strength of income generation to disciplined capital deployment. As a result, manager selection and strategy are becoming increasingly important drivers of outcomes.
“We continue to see opportunities in structurally supported sectors such as digital infrastructure, the energy transition, and technology-enabled businesses. However, dispersion across sectors and assets is rising, reinforcing the need for a highly selective approach to capital allocation.”
Opportunity through selectivity
The latest outlook comes after a period of stabilising valuations and improving financing conditions. However, global growth remains resilient yet uneven, while geopolitical risks and persistent inflation continue to shape the investment landscape.
The US remains relatively resilient supported by solid demand, while Europe and the UK face weaker consumption and tighter financial conditions. This divergence, alongside ongoing geopolitical tensions, is creating a more volatile and uncertain investment environment.
Inflation remains sticky. Although headline rates have eased, services and wage pressures are keeping interest rates higher for longer, influencing financing conditions, valuations and investment discipline across private markets.
Aberdeen analysis suggests that while deployment is expected to improve throughout 2026, competition for high-quality assets is intensifying. Asa result, returns are likely to be driven increasingly by operational value creation, sector selection and structural growth themes rather than broad market recovery.
Against a backdrop of slower but resilient growth, policy divergence and elevated geopolitical uncertainty, Aberdeen believes private markets remain central to building resilient portfolios. However selectively, will be critical as dispersion between assets, sectors and strategies continue to widen.
Infrastructure
Infrastructure continues to benefit from structural tailwinds, across energy transition and digital infrastructure, with capital deployment concentrated in assets linked to electrification, data demand and essential services. Activity remained resilient into 2026 despite a more uncertain macro backdrop, with global deal value reaching around $327bn in Q1, up 10% year-on-year, albeit with fewer transactions, pointing to increasing concentration in larger, higher-quality deals.
Returns are increasingly being driven by cash income rather than valuation expansion, reflecting the impact of higher rates. Regional dynamics remain mixed: North America has led activity, particularly in power generation and data centres, while Europe has softened, with deal value falling 27% year-on-year to $71.7bn following elevated renewable activity in 2024*. Despite this, core infrastructure has remained resilient, supported by continued demand for essential services and digital capacity.
Looking ahead, capital allocation is expected to remain focused on digital and energy transition assets, with increasing competition for high-quality opportunities and greater differentiation between leading and lagging segments. As a result, returns are likely to become more dependent on asset-level positioning and execution, with rising dispersion across sectors and strategies reinforcing the need for selectivity.
Aberdeen’s House View indicates expected five-year internal rate of return (IRR) of around 9–11% for core infrastructure strategies, and 12–15% for core-plus strategies. Infrastructure Core typically refers to lower-risk essential assets that offer stable, long-term cash flows.
Infrastructure Core Plus may involve assets with greater operational complexity, growth potential or exposure to transition themes.
Real estate
Real estate is recovering, but unevenly, with improving fundamentals supported by clarity on rate outlook and constrained supply. Capital is increasingly concentrated in high‑quality assets and structurally supported sectors, helping sustain rental growth and stabilise returns. However, sentiment remains cautious amid geopolitical uncertainty and persistent inflation, keeping fundraising subdued and transaction volumes below previous-cycle levels.
Activity is gradually improving but remains selective. Global direct investment reached around $216bn in Q1, up 18% year-on-year**, with recovery skewed towards higher-quality, more liquid assets. Regional performance remains mixed: Europe’s recovery is intact but fragile, supported by resilient leasing and limited supply; APAC has shown stronger momentum with improving transaction activity; and the UK outlook is constructive, underpinned by stabilising values and income resilience.
Looking ahead, returns are likely to be driven less by broad cyclical recovery and more by income resilience, asset quality and sector selection. Yield spreads remain supportive, with European all‑property spreads at around 150bps over bonds as of early 2026, although less attractive than at peak repricing. As a result, performance is expected to remain polarised, as sector outcomes become more differentiated, with industrial and retail supported by clearer cash-flow visibility, while residential and offices remain more exposed to financing and market-specific risks., This reinforces the importance of disciplined selection and execution.
Aberdeen’s House View indicates expected five-year IRR of 6–8% for core real estate strategies and 10–15% for value-add strategies.
Private credit
Private credit remains structurally supported as demand for capital continues to outpace supply, particularly as banks retrench. While some areas — particularly parts of direct lending - deserve closer scrutiny, other segments are backed by real assets or offer higher credit quality. Market conditions have become more lender‑friendly, with wider spreads and tighter underwriting supporting pricing discipline and deal terms. This is particularly evident in more complex segments, reinforcing private credit’s role as a key funding source in a more constrained lending environment.
Activity, has softened in the near term. In the US, direct lending totalled 199 deals and around $71bn in Q1 2026, while LBO activity fell to a multi‑year low, albeit with year‑to‑date volumes still modestly ahead of the prior year on fewer, larger transactions. In Europe, direct lending volumes declined to around €8.3bn across 35 deals, down 33% by volume and 24% by deal count year‑on‑year***, reflecting slower execution and increased selectivity amid geopolitical volatility and sector‑specific risks.
Looking ahead, the opportunity set remains favourable, particularly in the mid‑market and more complex segments such as special situations and opportunistic lending. Pricing dispersion is widening and default rates are beginning to rise from low levels, reinforcing the importance of selective underwriting and manager selection. As a result, returns are likely to be driven by disciplined deployment and asset selection, rather than broad market beta.
Aberdeen remains selectively positive on private credit, with expected five-year returns target of around 8–12% for direct lending strategies and 6–8% for investment grade private credit.
Private equity
Private equity entered 2026 with residual momentum from late 2025, but activity softened as geopolitical uncertainty weighed on sentiment. Deal values declined in both major markets, with European deal value down 22.5% quarter‑on‑quarter and US deal value falling 18.3% to $260.2bn in Q1, reflecting a more cautious and selective environment. Public market volatility also weighed on sentiment, reinforcing a more measured pace of deployment.
Despite this, underlying dynamics remain constructive. Capital is increasingly focused on high‑quality assets and add‑on strategies, with add‑ons accounting for a decade‑high 71.4% of European buyouts. Valuations have stabilised at elevated levels, with buyout multiples at 12.6x globally and 11.9x in the US, though this reflects a narrower pool of higher‑quality deals rather than broad market strength. At the same time, LPs are rotating towards liquidity solutions, with secondaries accounting for a record 19% of fundraising in Q1, highlighting demand for capital recycling****.
Looking ahead, Aberdeen’s outlook for private equity is cautiously positive. Deal activity is expected to gradually recover as financing conditions ease, but selectivity and valuation discipline will remain critical. Returns are becoming less reliant on multiple expansion and more dependent on operational value creation, with continued investor focus on technology‑enabled and AI‑linked businesses. As dispersion increases, manager skill and asset selection are likely to be key drivers of performance.
For private equity, Aberdeen’s House View indicates expected five-year IRR of around 10–12% for buyout strategies and 12–15% for venture capital.
Ends
*Sources: Aberdeen Investments, June 2026, Infralogic, April/ May 2026, Preqin, May 2026.
**Sources: Aberdeen March 2026. JLL, May 2026, Preqin May 2026.
***Sources: Aberdeen, Preqin , PitchBook LCD, April 2026.
****Sources: Aberdeen, June 2026, PitchBook, April 2026.
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Notes to editors
About Aberdeen Investments:
Aberdeen Investments is a specialist asset manager that focuses on areas where we have both strength and scale across public and private markets, including credit, specialist equities and real assets.
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As at 31 March 2026, Aberdeen Investments managed c.£385bn on behalf of clients, including insurance companies, sovereign wealth funds, independent wealth managers, pension funds, platforms, banks and family offices.
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