5 Trends That Could Shape Private Markets and Alternatives Investing in 2026

From the stresses of geopolitical turmoil to rampant enthusiasm over AI, 2025 was an eventful year for private markets. What is in the cards for 2026, and what trends in private assets should investors be following? Head of AGF Capital Partners, Ash Lawrence, highlights five themes that he believes will figure prominently in private markets and alternatives investing in the year ahead.

The Risk and Reward of the Artificial Intelligence Trade

Public equity markets were a marvel to watch in 2025. From April to the end of the year, they climbed almost unabated as investors shrugged off tariff concerns and other geopolitical risks to focus their attention, almost exclusively, on the artificial intelligence (AI) boom that is transforming the global economy. There are two related outcomes to this AI boom that we are watching for 2026.

Firstly, last year has certainly furthered the concentration trend observed in public markets over the last few years. Initially with the “FANG”, then the Magnificent 7 and now with the name brand companies associated with AI. This concentration risk is not only around the specific large cap firms attracting most of the capital, but also an overall thematic risk around AI. The natural antidote to risk is diversification, one of the primary attractive features of private market and alternative strategies.

Secondly, as the surge in AI‑related deal activity over the past year shows, this thematic risk spans both public and private markets. That makes diversification a more nuanced exercise. With private funds in infrastructure, private equity and credit increasingly exposed to AI, investors need to ensure they’re truly diversified across underlying strategies and not just across asset classes.

As 2026 progresses we expect to see some moderation of the risk-on approach to AI in the markets, and believe that certain alternatives can stand to benefit. Focusing on mid‑ and lower‑mid‑market sectors in private markets can help investors sidestep some of the larger, more concentrated AI exposures. At the same time, absolute‑return alternative strategies may prove to be beneficiaries of this environment. Their mandate to seek relative value —less tied to market direction and more driven by identifying alpha, managing risk and exploiting mispriced securities —can offer diversification away from broad AI‑driven trends.

Downsizing to Find Private Credit Opportunities

Private credit has raised a record amount of money over the past few years, but whether that’s positive for investors may depend on where managers seek returns within the asset class going forward. In part, this is because large cap managers account for almost 80% of the capital that has been raised, tilting that segment of the market into a supply-demand imbalance with more capital than opportunities.

This dynamic is partly the result of a slowdown in private equity dealmaking and rising competition from U.S. banks seeking to regain market share after stepping back during the 2024 regional bank crisis. The outcome has been predictable: tighter spreads and lighter covenants. While understandable, these shifts come with trade‑offs - namely, lower yields than investors have grown accustomed to and a heightened risk of default. This is certainly not a new trend, but has been evident over the last 12 months.

So, what’s the alternative for 2026? We believe the mid‑ and lower‑mid‑market, lending in the $100‑million‑and‑under range, offer a more compelling opportunity. While there’s less capital to deploy at this tier, there are significantly more potential deals since most companies aren’t looking to borrow $500 million or more (a large‑cap manager’s general sweet spot). We also see an increased interest in non-sponsored lending as a way to expand the possible borrower universe to a whole host of small and medium size companies that aren’t tied to a private equity firm or sponsor.

Beyond that, our view is that mid‑market managers often benefit from lending at higher spreads with stronger covenants, especially in markets like Canada where competition is limited and many loans are negotiated bilaterally through long‑standing relationships.

Clearing the Logjam in Private Equity Deal Activity

It’s no secret that private equity and venture capital have both struggled from a lack of deal making over the past few years. Largely, that’s a reflection of the swift and significant increase in interest rates that occurred earlier this decade, but also perhaps of expectations that higher interest rates were only a temporary phenomenon, slowing significantly potential mergers & acquisitions (M&A) and initial public offerings (IPOs) activity.

Having invested through a very low interest rate environment since the Global Financial Crisis—and anticipating that environment to return—many sellers were more than comfortable postponing the sale of companies, especially if those assets were bought at prices that potential buyers were not currently willing to pay. Moreover, just when it seemed like this disconnect was closing and deal flow would start picking up on the promise of a more favourable regulatory regime in Washington, President Donald Trump launched his chaotic tariff policy in the spring. That effectively washed away whatever positive tide was building towards more activity in the first half of 2025.

The question now is whether these obstacles to dealmaking have finally run their course.

For one, we’ve seen a noticeable uptick in the dollar value of deals, if not the number of deals, in recent months. That suggests there is growing confidence in the macro backdrop, particularly as it relates to U.S. trade policy, which seems much more orderly and less uncertain than it did early on in 2025.

Second, there is a growing realization not only that the ultra-low interest rate environment of the past decade is behind us, but also that rates are unlikely to move dramatically from current levels. Ultimately, it’s this relative stability in policy that may entice more deals this year.

With a sizable backlog of private equity owned companies waiting to be monetized, and a very healthy amount of dry powder waiting to be invested, markets can only stay subdued for so long. While only time will tell, of course, we believe there are reasons to be optimistic that 2026 will finally see an end to the “logjam”.

Defence, the Other Big Investment Theme

AI may be the dominant investment story right now, but investors shouldn’t sleep on the growing opportunities in defence and security. In our view, the appeal of defence is backed by several catalysts.

First and foremost, there is today’s more tense geopolitical climate, which is threatening to undermine years of relative peace. In response, global government spending is reaching record highs, estimated at US$2.7 trillion in 2024 by the Stockholm International Peace Research Institute, and projected to reach US$6.6 trillion by 2035 if current trends persist¹.

Equally important to the amount of money being spent is how it’s being spent. In the past, governments dealt primarily with large contractors to build traditional “hardware” war apparatus like ships and tanks, but modern warfare is much more sophisticated and increasingly technology-based. That’s generally forcing governments to rejig procurement processes to be more efficient in sourcing their needs from smaller, technology firms that specialize in new and emerging technology solutions, which are often backed by venture capital. These types of innovations are becoming necessities in the defence and national security apparatus, including everything from autonomous systems and robotics to cybersecurity to communications and logistics.

While increased spending and shifting procurement models are reason enough for private‑market investors to take a fresh look at defence and security, many emerging technologies are “dual‑use,” meaning their addressable markets extend well beyond the defence sector to have meaningful civilian use cases.

Both geopolitical pressures and rapid technological change are driving long‑term, secular growth across the defence and security landscape. We believe these shifts align well with private capital’s ability to fund innovation, positioning the sector for a multi‑year expansion.

Liquidity and the Retail Investor

One of the positive trends in private markets over the past 10 years has been retail investors’ growing investment in open-ended evergreen funds. These structures are designed to provide more liquidity than traditional closed-end funds, and they can give access to private and alternative assets that would otherwise be available only to institutions and high-net-worth individuals.

That’s a good thing. But for all the success of evergreen funds to date, they can create challenges when investors don’t fully understand how they work or what they’re trading off. Greater diversification and access to uncorrelated returns often come with less liquidity than retail investors are accustomed to. And while evergreen funds can offer periodic liquidity, they still need to invest in long‑term assets to deliver the outcomes they’re designed for, which naturally limits how much liquidity they can provide at any given time.

Over the past couple of years, retail investors have gained a clearer understanding of this reality as various funds across the market have had to limit redemptions. Innovation will continue to improve liquidity management, but some degree of liquidity mismatch will always be inherent in the structure. While this has been a challenging adjustment, it will pave the way in 2026 for future growth in this channel as investors come to terms that such measures are part of the fabric of private markets and adjust their use accordingly.

We believe the rapid growth of alternative and private market products available to retail investors will also drive a new wave of education in the year ahead. Investors and managers alike will need to deepen their understanding of how various strategies differ in structure, risk and expected outcomes. Private credit and private equity are no longer single categories but broad umbrellas spanning multiple subsectors, specialties and geographies, much like the evolution of public markets.

So while calling 2026 “a year of education” may sound familiar, the depth of that learning—combined with investors’ growing experience with alternative products—will lay the groundwork for more durable growth. We believe this reset will help shape more realistic expectations and ultimately better investment outcomes, and in turn, more sustainable expansion of alternatives in the retail channel.

¹ United Nations, Report of the Secretary-General: The Security We Need  Rebalancing Military Spending for a Sustainable and Peaceful Future, published 2025.