What to Watch in Private Markets for H2

Private markets have entered the second half of 2026 with a mix of challenges and emerging opportunities. Valuation gaps, liquidity constraints and muted private equity activity remain an ongoing concern, but improving IPO markets, evolving private credit opportunities and strong institutional interest in strategic sectors are creating areas of opportunity for skilled managers.

In this outlook, Ash Lawrence, Head of AGF Capital Partners, outlines the themes poised to influence private markets in the months ahead.
 

The IPO Trickle Down Effect

One of the more positive aspects of 2026 so far has been the increasing amount of IPO activity in the venture capital segment. Admittedly, North American deal volume remains well below the 2021 peak, but 2026 year-to-date value has exceeded recent annual averages.

Source: Preqin as of June 16, 2026.

This was largely driven by headline-grabbing deals like Space X last month and the anticipation of Anthropic’s public debut later this year, but we also saw a good number of smaller-sized IPOs take place, perhaps owing to a trickle-down effect. While many of these deals were AI-related, there was still an encouraging level of breadth to the increase in activity, and we believe this trend is likely to continue in the second half of the year.

When Will Buyers and Sellers See Eye to Eye?

Despite the pick-up in IPOs, the first half of the year saw overall continued lackluster activity in North American private equity. We had anticipated greater pick-up heading into 2026, but transactions continue to be a grind, largely because buyers and sellers are still out of sync when it comes to valuations. This is in large part driven by resurgent macro factors including continued trade volatility, geopolitical conflicts, and resurgent inflation.

Source: Preqin as of June 16, 2026.

While several notable exits have been completed this year, activity remains concentrated in large, premier assets rather than reflecting a broad-based recovery across the private equity market. As a result, transaction volumes, and thus funds’ distributions, remain subdued, which may be contributing to continued softness in new private equity commitments.

That doesn’t mean allocations and fundraising have dried up entirely, but it’s become a much more selective process and should remain so until distributions start to flow back to investors.

In Defense of Private Markets

While overall broad-based fundraising remains soft, strategic sectors are seeing strong institutional interest and beyond just AI-related companies. For example, over the past six months there has been a meaningful change in institutional interest and uptake in the security and defence sector, particularly around innovation and technology. This is an area where our affiliate manager, Kensington Capital Partners, has developed deep expertise through its ONE9 defense and security platform, and it's as though a switch has flipped in terms of investor interest in the sector in 2026.

Last year, many investors were still evaluating the opportunities and risks associated with emerging companies in the security and defence sector. Today, the conversation has evolved considerably, with a growing number actively assessing potential allocations and establishing frameworks to incorporate these investments into their portfolios. Moreover, we are seeing some of the non-traditional allocators like the banks starting to actively deploy capital into the sector as they become more knowledgeable about facets that are unique to it, including the growing prevalence of dual-use technology and the pursuit of structural changes to government procurement processes.

The Noise in Private Credit

In private credit, the market entered 2026 from a resilient but more selective backdrop. Institutional demand remained intact, but investors became increasingly focused on manager quality, underwriting discipline and sector exposure. The shift appears less about demand and more about selectivity and specialization.

That said, it was difficult to ignore the headlines surrounding elevated redemption requests in certain large, U.S. semi-liquid private credit vehicles during the first half of the year. While these developments attracted significant attention, they were largely concentrated in specific channels and segments of the market, particularly retail oriented funds with exposure to non-traded Business Development Companies (BDCs) and software-related private equity transactions.

Looking ahead, we believe that the focus will be on the core middle market and lower mid-market, where spreads remain attractive and terms have held firm.   Here we’re seeing activity being driven in the non-sponsor backed segment by refinancings and new financings in sectors with more durable cash flows, including business services, healthcare and industrials. Software exposure is minimal, and generally AI is a business enabler or growth driver in this segment.

The Rise of Mid-Market Specialists

In 2026, capital continues to gravitate toward specialist managers as institutions increasingly recognize that many of the managers they have invested in (and partnered with) over the past 10 years have expanded their mandates and become more generalist in nature. As a result, we’re seeing a stratification of sorts, whereby institutions will allocate to a generalist to get overall exposure to private equity or private credit but complement that with an allocation to a specialist for exposure to a specific sector, i.e. the lower mid-market, that arguably has a differentiated alpha generation and risk profile.

The appeal of this approach is supported by market fundamentals. In private credit, for example, lower mid-market lending continues to offer a meaningful spread premium relative to larger-cap credit opportunities. This remains a key area of focus for the AGF SAF Private Credit strategy. While that premium has narrowed from peak levels, middle-market spreads remain attractive, and lenders continue to benefit from less competitive markets, stronger lender protections and greater scope for differentiated underwriting. For investors, this can translate into the potential for enhanced risk-adjusted returns within a focused area of the market.

Wanted: Exposure to AI beneficiaries

Not surprisingly, we see attractive opportunities in both private equity and private credit through general partners (GPs) that are operating in the lower mid-market in the United States. More specifically, as it relates to private credit, we like GPs that have differentiated skill sets in terms of originating loan volume outside of the sponsor-backed market associated with private equity portfolio loans, as well as managers within that space that have demonstrated capabilities to contribute operationally to companies they lend money to when things go a little awry.

Moreover, we like the fact that the lower mid-market segment has a very different dynamic than the large cap space when it comes to AI disruption. It doesn’t have the same exposure to software stocks, which, as we noted earlier, is a particular pain point now, but instead has significant exposure to service-oriented companies, many of whom could benefit from AI’s influence on operational efficiencies over time.

Real Estate: An Asset Class to Watch

AI disruption is no doubt an important consideration for private markets investors, but one facet of our lives that seems immune to the technology’s implications is our ongoing need for shelter and physical spaces to live in and work from. Supporting this is the continued return to office trend over the last 12 months in conjunction with the increase (though modest) activity in redevelopment conversions of older office buildings into residential buildings. In turn, that should be a positive catalyst for real estate, which unlike private equity, seems to be through its “low” cycle and may now be in the early innings of a recovery.

Grinding Through the Performance Cycle

Performance in private markets has varied meaningfully across strategies this year, with areas such as opportunistic credit and Canadian lower mid-market direct lending demonstrating relative strength.

More broadly, however, private market returns have lagged public markets. We believe it is important to view this in context. Private and public markets operate on different time horizons, with distinct valuation, liquidity and return characteristics, making direct comparisons over short periods less meaningful.

In our view, the current environment reflects a cyclical adjustment from the elevated valuations and abundant capital that characterized the earlier part of the decade, rather than a structural shift in the asset classes. As valuation resets work their way through the system and exit activity improves, we believe the long-term investment case for private assets remains intact.