CONTRIBUTORS
Stephen Dover, CFA
Chief Market Strategist
Head of Franklin Templeton Institute
Tony Davidow, CIMA®
Senior Alternatives Investment Strategist
Franklin Templeton Institute
Priya Thakur, CFA
Analyst
Franklin Templeton Institute
Key points
For 2026, we see three macro themes emerging: broadening, steepening and weakening.
- Broadening reflects our conviction that investment opportunities across regions and asset classes are expanding.
- Steepening refers to yield curves, where falling short-term interest rates should incentivize many investors to move out of cash holdings and into risk assets, including equities, credit and duration fixed income.
- Weakening regards the US dollar, which we think augurs well for emerging debt and equity markets, and is also an important development for portfolio management and hedging strategies.
As we examine 2025 and consider the new year ahead, we see a backdrop of new highs in US equity markets, a resumption of the Federal Reserve’s rate-cutting cycle and still stubborn inflation. Geopolitical risks around the world remain elevated, with the markets still digesting the impact of trade tariffs and their long-term implications. Based on the current market backdrop, in this executive summary, we see the following opportunities in private markets in the year ahead.
- Private equity: While exits have picked up, and valuations are down, we still favour secondaries due to attractive fundamentals and their built-in structural advantages.
- Private credit: We find more attractive opportunities with asset-based finance and commercial real estate debt, which have their own unique risk, return and correlation characteristics.
- Real estate: We continue to have concerns about the office sector, but believe that multi-family, industrials and other sectors can provide attractive opportunities.
- Infrastructure: We believe infrastructure represents an emerging opportunity, and see the most attractive opportunities in digital infrastructure, decarbonization, deglobalization and demographics.
There will be some areas that face considerable headwinds, while others will benefit from structural changes underway. Our highest-conviction ideas are private equity secondaries, commercial real estate debt, real estate and infrastructure.
In our view, manager selection will be critical in distinguishing among the winners and losers, where we anticipate a larger dispersion of returns. We also believe there will be a big difference in deploying capital today versus older vintages (2020–2023).
We will expand on this executive summary in our complete 2026 Private Markets Outlook, which will be available soon.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Investment strategies involving Private Markets (such as Private Credit, Private Equity and Real Estate) are complex and speculative, entail significant risk and should not be considered a complete investment program. Such investments viewed as illiquid and may require a long-term commitment with no certainty of return. Depending on the product invested in, such investments and strategies may provide for only limited liquidity and are suitable only for persons who can afford to lose the entire amount of their investment. Private investments present certain challenges and involve 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. 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.
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.
Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
Equity securities are subject to price fluctuation and possible loss of principal. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.
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