iCapital Market Pulse: Five Questions Facing Private Markets

Key Takeaways:

• Liquidity in private markets is improving, with exit volumes and multiples trending higher, though distribution rates remain subdued.
• Secondary transactions continue to play a critical role for investor liquidity and a growing role in portfolio management—and are likely a permanent fixture.
• Direct lending spreads on new deals have compressed, but returns remain resilient, supported by strong deal flow and underlevered portfolios.
• Commercial real estate is seeing more pricing recovery and improving transaction volumes.
• Investor flows are shifting within private markets, with growing interest in asset-based finance, multi-asset credit, infrastructure debt, and evergreen private equity strategies.

As we look ahead to 2026, the private market is being shaped by a combination of structural shifts (private wealth access, evergreen vehicles) and cyclical dynamics (declining rates, capital market reopening). Below, we address five key questions around private markets that are top of mind across client conversations and investors.

1. Is liquidity improving in key areas of private markets?

Liquidity is improving, though pressures remain amid a still-elevated exit backlog and low distribution rates—a trend that we expect to persist into 2026, but with incremental gains as the year progresses.

In Q3, publicly-traded alternative managers reported strong realizations across asset classes.¹  During Blackstone’s Q3 earnings call, CEO Jon Gray even noted that “the deal dam is breaking, and it should lead to more realizations over time,” supporting our view of a robust pipeline and an acceleration ahead.²

More broadly, buyout multiples, specifically exit multiples, continue to improve off their 2023 lows, reflecting a growing willingness from buyers to transact with sponsors.³  And exit volumes for both buyout and venture capital, on an annualized basis, are on pace to exceed 2024 levels, indicating more assets are starting to move through the system (Exhibit 1).⁴

That said, ~85% of U.S. private equity-backed companies have now been held eight-plus years.⁵  Realizations are occurring, but often at discounts to prior 2021-22 peak valuations, keeping distributions near multi-year lows. However, we see capital market activity continuing to strengthen into next year, and the reopening of IPO windows and M&A should support continued momentum in exit volumes and valuations—a positive sign for liquidity and distributions in the quarters ahead.

2. Are secondary transactions easing the industry’s liquidity crunch?

Secondary volumes surpassed $103bn in the first half of 2025 and are on pace have a record year (Exhibit 2).⁶  Secondaries have continued to serve as a key release value to both Limited Partners (LPs) and General Partners (GPs) over the past couple of years, despite the recent pickup in exit activity. For LPs, the secondary market has become increasingly efficient and attractive—bid-ask spreads are narrowing and pricing is improving—allowing them to unlock capital without waiting for GPs to exit. On the GP side, sponsors are leveraging secondaries to retain control of high-performing assets while offering liquidity to existing investors.

Looking ahead, we expect secondary transaction volumes to remain elevated, even as traditional exits pick up more meaningfully next year. At the current rate of exit activity, it would take roughly 7.7 years to exit all current private equity-backed investments.⁷  Even assuming exit volumes double next year, it would still take three to four years to run through the inventory.⁸  This means many sponsors will continue to turn to the secondary market to manage aging portfolios and meet investor liquidity needs. And as we’ve noted here, secondaries are likely a permanent fixture of private markets.

3. How are investors assessing return compression in direct lending?

Spreads in direct lending have compressed by roughly 200 basis points (bps)⁹  over the past few years—from SOFR + 700bps to closer to SOFR¹⁰  + 500bps today (Exhibit 3).¹¹  While increased competition from banks re-entering the syndicated loan market has played a role, a less discussed factor was the rise in base rates. As SOFR rose from effectively 0% in 2020 to around 5% in 2023-24, it became unrealistic for high-quality borrowers to pay 11–12% all-in yields (SOFR + 700bps spread), making some spread compression natural.¹²

Yet performance has held up well—unlevered annualized returns have averaged roughly 11% over the past five years.¹³  Looking ahead, we still think direct lending could maintain its relative attractiveness, with gross yields in the 8–9% range, roughly 200bps above leveraged loans.¹⁴  We see this for a few reasons:

1. Many lenders still have capital deployed at wider spreads, which should help cushion the impact of recent tightening.
2. The pick-up in deal flow and our expectation for continued strength through 2026 should help stabilize spreads and may even push them slightly wider.
3. Many lenders remain underlevered, having achieved strong returns without relying heavily on financing. As the cost of leverage declines with anticipated Fed rate cuts, lenders may be able to lean more on financing to preserve high-single to low-double-digit returns.

4. What trends could give us conviction on a rebound in Commercial Real Estate?

After roughly three years of adjustment, commercial real estate (CRE) continues to show signs of broad-based stabilization. Property prices have found a floor and in some cases inflected higher (Exhibit 4), and transaction volumes through Q3 remain healthy—an encouraging sign that buyers and sellers are beginning to meet on pricing expectations.¹⁵

We’re watching for cap rate stabilization. Cap rates, which move closely with interest rates, are leveling off.¹⁶  As the market gains greater conviction around the ~75bps of rate cuts priced-in through year-end 2026¹⁷, funding costs should decline, supporting asset valuations and making transactions more feasible.

We’re also watching supply-demand dynamics, which are improving. Even though completions remained strong through Q3, construction pipelines have slowed which should help absorb existing inventory.¹⁸

Yes, there’s still noise around policy uncertainty and tariffs, but most managers have already adjusted. If rates move as expected and fundamentals keep improving, we could see a more durable recovery

5.  Where are investors allocating capital in private markets at this juncture?

Investor demand for private markets remains strong, especially within the private wealth channel. Private wealth holds $145tn¹⁹  in assets but with an average allocation to private markets of less than 5%²⁰ , remains heavily under-allocated to private markets. As access improves, flows are shifting across asset classes.

Private credit continues to dominate allocations though capital is gradually shifting from traditional direct lending strategies to asset-based finance (ABF) and multi-asset, or hybrid, credit strategies.²¹  As direct lending matures and capital becomes more crowded, we expect this trend to persist—especially as the largest GPs expand private lending beyond middle-market loans to include private investment-grade and ABF opportunities (see our ABF white paper here).

At the same time, private equity is also capturing a growing share of flow. PE-focused evergreen funds now account for ~25% of total evergreen NAV, up from 13% a year ago.²²  Our own iCapital Flow-of-Funds data, which tracks $227bn+ in global assets serviced on our private markets platform, shows a similar trend. While demand remains broad-based across private markets, investors are increasingly allocating toward PE, particularly growth equity and venture capital.²³  In Q3, 43% of new allocations on iCapital platform went to private equity, up from 35% in Q1 (Exhibit 5).²⁴  This shift makes sense—as investors diversify their private market sleeves, private equity aligns with major secular themes such as AI.