Uncertainty remains the dominant theme for the global economy. Significant US policy changes since the start of the year – with new trade tariffs and remaining lack of clarity over the future path of trade policy – continue to present risks that can impact growth, inflation, and the path of interest rates.
Additionally, recent accommodative fiscal and budget legislation in the US, UK and continental Europe, while presenting short to mid-term opportunities by potentially supporting growth, has generated concerns over government debt sustainability. This is all against a backdrop of escalating conflict, not least in Europe and the Middle East, presenting further risk factors.
In the face of these headwinds, the potential of private markets to help investors navigate prevailing global uncertainty has arguably never been more important.
Investors are alert to this potential
What we’re seeing today is rising investor appetite for actively managed strategies, as found within our latest Global Investor Insights Survey[1]. As part this, investors are increasingly turning to private markets.
Private equity is almost level with global equities as the number one asset class for investors seeking return opportunities in the current market – and ranked number one overall for return opportunities among institutional investors.
Meanwhile, the broad universe of opportunities within private debt and credit alternatives is the top-ranked option for investors seeking to generate income over the next 12 months. This is ahead of high-yielding equities, active public corporate bonds and diversifying government bond exposures, signalling a broad-based recognition that private credit is no longer merely an alternative – it can be considered a core building block for resilient portfolio income.
What’s driving this?
Resilience, income and return potential – but selectivity and diversification key
Private markets currently benefit from important cyclical tailwinds. A broader private market slowdown in terms of fundraising, new deal activity and exits is now in its fourth year. As a result, private market valuations and yields are generally attractive in both absolute and relative terms.
This adds to the long-term structural benefits, especially amid challenged market environments. Indeed, private markets have historically offered some protection against public market volatility and have often thrived during periods of uncertainty. Take our recent analysis of the five major financial crises over the past 25 years[2] – the Dotcom Crash, the Global Financial Crisis (GFC), the Eurozone Crisis, the COVID-19 Outbreak, and the Return of Inflation – where private equity consistently outperformed.
We do, however, believe that in the current market environment there will be some private market strategies that exhibit notably better risk/return profiles than others. In a market with heightened idiosyncratic risk related to announcements and policy changes, diversification is important.
We believe focus should be placed on strategies with downside protection, that provide access to companies and assets that are to a degree insulated from global trade risks, and/or can bring diversification through reduced correlation with listed markets and distinct risk exposures.
So, what does this look like in practice?
In private equity, small is beautiful.
Smaller, innovation-rich, services oriented and domestically focused companies that are inaccessible via public markets can be less exposed to global trade disruptions and geopolitical tensions. Local champions with operational and transformative growth potential, and multi-polar innovation are key trends in identifying the best opportunities.
Small and mid-sized buyouts, continuation fund investments and early-stage venture capital focused on key growth sectors can access these interrelated trends.
Across private debt and credit alternatives, we see specialised strategies as key. Increasing volatility, such as the more attractive yields on offer following the US trade tariff announcements, create interesting opportunities across the debt spectrum. The more volatility and the more disrupted the liquidity, the more opportunity in private credit.
Specialty finance, asset-based lending and real assets debt, can offer stable, high income or diversifying cashflows, in many cases capitalising on market inefficiencies. Meanwhile, from an income diversification perspective, insurance-linked securities (ILS) are attractive for their combination of strong returns and low correlation with traditional markets.
Despite the recent push back in the US, renewable energy infrastructure remains compelling due to its strong inflation correlation and secure income traits – with the most attractive opportunities now clearly in Asia and Europe, where governments continue to strengthen their decarbonisation commitments. That being said, don’t count out the US – while we may see a slowdown, we believe renewables build out will continue albeit at a reduced pace.
Additionally, it’s widely understood that renewable-related technologies, such as hydrogen, heat pumps, batteries and electric vehicle charging, will play a crucial role in facilitating the decarbonisation of hard-to-abate sectors such as transport, heating, and heavy industries.
Furthermore, we regard all real estate as inherently operational. By adopting a hospitality-led approach, investors can enhance income through services that foster tenants’ success. We retain conviction in a variety of living and operational segments that offer direct or indirect inflation pass-through, demonstrate attractive value, and are supported by favourable structural trends. These segments enjoy operational performance that is less sensitive to broad economic fluctuations.
In conclusion, as uncertainty persists in the investment landscape, private markets offer valuable opportunities for resilience and sustainable returns. Their breadth allows investors to focus on strategies less affected by market volatility, providing avenues for income and growth. By integrating these private market strategies, we believe investors have the potential to better navigate the current challenges while positioning their portfolios for the future.
[1] The GIIS canvasses the views of nearly 1,000 institutional investors and wealth managers overseeing approximately $67 trillion in assets. View the survey here: https://www.schroders.com/en-gb/uk/intermediary/global-investor-insights-survey-2025/
[2] Read the full study here: Private equity performance during crisis periods over the past 25 years
