Why do private markets matter for long‑term investors?

Private markets provide access to investment opportunities unavailable in public markets, offering diversification, reduced correlation, and sources of return that stem from active ownership. Key advantages include:

1. A broader investment universe

Private markets capture companies and assets beyond the reach of public securities—across niche industries, early‑stage businesses, and specialised asset types. Their unique profiles make them attractive for investors seeking differentiated exposure.

2. Enhanced portfolio construction

Long‑term investors able to wait three to seven years on average can benefit from lower correlation between private and liquid assets. Because different private market sub‑strategies outperform in different phases of the economic cycle, diversified allocations help smooth returns over time.

3. Access to active value creation

Access to differentiated sources of value creation. Managers of private market funds apply specific skill sets and expertise through active ownership. They have the agency to deploy capital in less-well-known markets to exploit near-term mispricing and to implement specific and often unique strategies to buy, transform, and sell private companies and assets.

Julius Baer House View 2026: What investors need to know

Our 2026 outlook highlights opportunities and risks influencing private markets today.

Public and private markets are symbiotic

Public markets are an irreplaceable source of information, notably for valuing private companies. Private markets provide the flexibility required for corporate transformations and for financing companies in situations that fall outside the traditional framework of maturity or business growth.

Regulatory and sector risks are rising

Concerns are likely to increase over mergers and acquisitions in sensitive sectors such as healthcare and technology, potentially leading to higher costs and suboptimal outcomes for some private market funds.

Lower rates support LBO activity but pressure direct lending

Lower base rates will put pressure on direct lending returns mostly based on variable interest rates. However, since transactions will pick up as debt will be more affordable, spreads could widen, partially or fully offsetting the decrease in the base rate. Lower base rates also reduce borrowers’ debt burden, potentially decreasing defaults.

Direct lending appears late‑cycle

High selectivity is advised due to:

• Widespread covenant‑light structures
• Lower potential recovery rates in asset‑light sectors
• Rising risks in AI‑linked data centre financing

Exit markets are reopening

Since 2021, market volatility and a steep and fast increase in interest rates have significantly slowed down exits. Companies financed by private market funds will eventually need to be sold or listed. As interest rates progressively decrease and market conditions become more supportive of IPOs, managers are finding more attractive exit opportunities. This trend has been evident since 2024, with rising distributions and a positive balance between distributions and capital calls in LBO.

Innovation focuses on solving liquidity challenges

Evergreen structures are an attempt to address the challenge of liquidity, alongside continuation funds, net-asset-value-based financing, and credit lines. These instruments still need to prove their resilience. Investors are advised to conduct thorough due diligence and carefully assess how these instruments would perform under stress.

Evergreen funds: Best for predictable, yield‑oriented strategies

Evergreen funds are well-suited for investments with relatively predictable durations and a yield component. Investors should participate in evergreen funds alongside large, stable, and patient institutions. Evergreen fund investments should be approached selectively: larger funds backed by a diverse and stable institutional investor base – and demonstrating a sustained track record – should be prioritised. 

Closed‑end funds remain best for capital‑gain strategies

Closed-end funds provide managers with the necessary flexibility to deploy capital and harvest performance at the desired time. Given uncertain time horizons, manager selection skill is critical.

Secondaries offer tactical advantages

Secondaries are one of the main tactical tools. Their value lies in time diversification and the opportunity to buy high-quality assets at a significant discount. Performance should be judged on a cash-on-cash basis only, not through IRRs, which are prone to manipulation when assets are revalued at NAV post-purchase. Investors should avoid acquiring overpriced and overstretched LBOs, even at a discount.

Venture Capital requires caution

When investing in this VC sector, diversification is paramount – notably because individual funds are industry-focused – as well as expert skills in manager selection. Fund of funds can help to mitigate risks while benefiting from an exposure to this specific strategy.

Start‑up valuations are a weak indicator

The valuations of start-ups are merely theoretical and implied. The calculation does not account for preferential rights (such as veto or liquidation) which trigger a higher price per preferred share than for common ones. This calculation provides no indication of the company’s actual value. Consequently, the only time one knows the actual value of a privately held start-up is when it is sold or listed on a stock exchange.

AI FOMO hints at past governance failures

The Fear Of Missing Out on so-called ‘artificial intelligence’ is reminiscent of the Theranos and FTX debacles: high valuations and weak governance lead to major failures. Utmost caution is warranted when venturing into investment fields that combine these two factors. Separately, the impact of ‘artificial intelligence’ could be disruptive and/or enhancing for private market investing – or more likely both at the same time.

Leadership transitions will shape the industry

Successions are underway at the helm of the most established fund managers. The ‘founding fathers’ of modern private equity are handing over their franchises with varying degrees of orderliness. As strong egos dominate the industry, frequent spin-offs counterbalance a broader trend towards a slow and very progressive consolidation.