The private markets boom that thrived on abundant capital and rising valuations is giving way to a more demanding investment environment, with returns increasingly dependent on asset selection and operational execution rather than broad market appreciation.

That is the central message from Aberdeen Investments’ latest Private Markets House View, which notes that investors are entering a period in which manager quality and sector selection will matter more than ever as performance gaps widen across private equity, private credit, infrastructure and real estate.

For much of the past decade, declining interest rates and abundant liquidity have helped lift valuations across private assets. But with borrowing costs remaining elevated, geopolitical uncertainty weighing on markets and investors becoming more selective, Aberdeen believes those tailwinds have largely disappeared.

Instead, future returns are likely to be driven by factors investors can directly influence — improving businesses, managing assets more efficiently and deploying capital into sectors supported by long-term structural trends.

“Private markets are entering a more selective phase,” Nalaka de Silva, head of private markets solutions at Aberdeen Investments, said in the report. “Fundamentals matter more than ever, from the quality of the underlying assets and the strength of income generation to disciplined capital deployment.”

Infrastructure’s AI Boom Continues

In infrastructure, Aberdeen expects five-year internal rates of return of roughly 9% to 11% for core strategies and 12% to 15% for core-plus investments. 

Rather than relying on rising asset values, the firm expects returns to come increasingly from stable cash flows tied to sectors such as digital infrastructure, power generation and the energy transition.

Those themes continue to benefit from surging demand for data centers, electrification and AI-related infrastructure, even as financing conditions remain tighter than they were several years ago.

Private Credit Faces Its Biggest Test Yet

Private credit also remains one of Aberdeen’s favored areas despite growing investor scrutiny in parts of the market.

The firm forecasts annualized five-year returns of approximately 8% to 12% for direct lending strategies and 6% to 8% for investment-grade private credit.

It cautions that rising default rates and widening pricing differences between borrowers mean underwriting discipline is becoming increasingly important.

While fundraising has remained resilient, several large private credit funds such as Partners Group, Cliffwater and Apollo Global Management have recently faced elevated redemption requests, raising questions about liquidity management even as institutional demand for private lending remains strong.

Private Equity Enters a More Disciplined Cycle

After gaining momentum late last year, private equity entered 2026 facing a more cautious backdrop as geopolitical tensions weighed on deal activity, the report explained.

Aberdeen expects buyout strategies to generate returns of roughly 10% to 12% over the next five years, with venture capital potentially delivering 12% to 15%. But unlike previous cycles, the firm says future gains are less likely to come from multiple expansion and more likely to depend on operational improvements within portfolio companies.

That reflects a broader shift already visible across the industry, where sponsors are increasingly relying on add-on acquisitions, cost efficiencies and technology investments to create value while dealmaking remains below previous peaks.

The report also points to growing investor interest in technology-enabled businesses and AI-related opportunities, areas that continue attracting capital despite broader economic uncertainty.

Aberdeen’s outlook suggests private markets are not entering a period of weaker returns so much as a period of greater dispersion. The company noted its outlook is "cautiously positive. Deal activity is expected to gradually recover as financing conditions ease, but selectivity and valuation discipline will remain critical."

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