Key Takeaways
Capital markets activity, trade policy, and the path of U.S. Federal Reserve policy were the overarching inputs that went into our rating analysis. The second half of 2025 ended with more momentum than it started, with deal activity rebounding and exit volumes climbing. Overall, we remain constructive on select private equity and real assets strategies, while downgrading private credit to Neutral given lower base rates, rising BDC redemption pressure, and heightened focus on new deployment.
PRIVATE EQUITY
Exit activity re-accelerates
U.S. PE deal activity reached $1.2 trillion in 2025 — only the second time it has exceeded $1 trillion — with nearly 900 middle market transactions closing in Q3 alone2. Venture deal value hit $339 billion, the second-highest on record, with AI accounting for approximately 65% of all U.S. venture deal value.3
Deal Activity
U.S. Middle Market PE Deal Value and Activity
Source: PitchBook, 2025 Annual U.S. Middle Market Private Equity Report, as of March 13, 2026. For illustrative purposes only.
PRIVATE CREDIT
Mixed signals emerge
Private credit performance remained resilient, but lower base rates, spread compression, and rising BDC redemption pressure lead us to downgrade our outlook to Neutral. We believe lenders can still achieve attractive gross yields — a premium to high yield and investment grade credit — with default rates remaining in the 2–3% range.
REAL ASSETS
Structural tailwinds persist
Infrastructure
Infrastructure fundraising reached record highs in 2025, supported by digital transformation and energy transition themes, with electricity demand projected to increase 40% by 2035.
Real Estate
In Real Estate, Value-add Real Estate remains our top idea, with NOI growing faster than inflation over the past decade.
Hedge Funds
Versatility shines
Hedge funds saw over $116 billion in net inflows in 2025 — the most since 20076. A growing list of global market dislocations and monetary policy divergence creates a rich backdrop for multi-strategy, macro, and event-driven funds.
The S&P 500 Index is Heavily Weighted Towards a Small Number of Stocks
S&P 500 index return attribution (% data for CY 2025)
Source: Bloomberg, First Trust Advisors, February 2026. For illustrative purposes only. Past performance is not indicative of future results. Future results are not guaranteed.
Private Markets & Hedge Fund Strategy Ratings
1H 2026
Explanation of iCapital’s Ratings Framework
iCapital’s basis for assigning ratings is the research team’s view of how the investment strategy will perform over the next three years relative to its respective category. For this purpose, the “category” is the asset class associated with investment strategies for which the research team provides coverage. For example, a rating for Growth Equity is relative to other strategies within the Private Equity category.
Strategy ratings are reevaluated at least semiannually with an emphasis on whether the outlook is materially different to affect how the investment strategy may perform over the next three years relative to its category.
Strategy Ratings:
- Positive: Investment strategies expected to outperform the category over the next three years.
- Neutral: Investment strategies expected to perform in line with the category over the next three years.
- Negative: Investment strategies expected to underperform the category over the next three years.
We use a three-year time horizon as it is roughly the average holding period for a private market asset. For Hedge Funds, we use the same strategy rating method but consider a 12-to-24-month performance outlook because of the higher mix of liquid assets that a typical hedge fund may own.
Related Articles
1. Bain Private Equity Outlook 2026: Gaining Traction. (for 717b)
2. Pitchbook, PE Breakdown, published January 13, 2026.
3. PitchBook Q4 2025 NVCA Venture Monitor, as of December 31, 2025
4. IEA’s 2025 World Energy Outlook, published November 12, 2025
5. Barclays Investment Banking Global Shareholder Advisory Group analysis, January 9, 2026
6. HFRI, December 2025
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