In our approach to portfolio construction, liquidity, risk and return are not viewed in isolation. They are interrelated characteristics that exist along a continuum, shaped by structure, behavior and market conditions, and tend to reveal their true nature when markets are under stress.
The past year reinforced why we view portfolios through that lens. In 2025, assets widely assumed to be liquid showed otherwise at critical moments — post-Liberation Day being a clear case in point — while parts of the private market, often characterized as inflexible, demonstrated resilience through structure, alignment and underwriting discipline. The difference was not simply public versus private, but between investments built on faulty assumptions and those designed with greater intentionality.
That distinction has become increasingly important as markets reward investors who can underwrite across structures, integrate exposures across the portfolio and respond dynamically to changing conditions. Frameworks built around static allocations and historical correlations are being tested in an environment defined by uneven supply, higher financing needs and greater dispersion.
From our perspective, the opportunity in portfolio construction heading into 2026 is less about identifying a single asset class to outperform and more about understanding how advantage is created and sustained at the portfolio level. The themes that follow are not standalone trades. They reflect a more intentional, total portfolio approach to construction, one designed to compound capital, protect downside and adapt as market conditions evolve.
The growth of private markets is not a cyclical anomaly. It reflects a deeper shift in where economic activity is taking place. Revenue growth, employment growth and capital formation are increasingly occurring outside public markets, as companies remain private for longer and rely on non-bank capital to fund expansion. That shift is evident in the data: More than 80% of US companies with more than $100 million in revenue are private,1 while S&P 500 companies represent less than 20% of total US employment.2
As a result, the expansion of private credit and private equity should not be mistaken as a sign of excess. What matters far more than the venue of origination is the quality of underwriting, the position in the capital structure and the degree of downside protection embedded in the investment.
Dispersion is often framed as risk. In reality, it is the market doing its job. It reflects differentiation between strong structures and weak ones, durable cash flows and financial engineering. For disciplined investors, dispersion is not a warning sign — it is the opportunity set. Risk is being priced unevenly across issuers, instruments and structures, creating a buyer’s market for those willing to underwrite selectively.
In credit, outcomes are increasingly driven by structure and discipline rather than broad beta exposure. Credit does not become low-risk because it trades daily, nor high-risk because it does not. What matters is seniority, covenants, collateral and sponsor behavior. Origination venue is incidental; structure and fundamentals are decisive.
In this environment, credit is no longer a blunt allocation. It can be a precision instrument — through underwriting skill, flexibility and judgment.
AI is reshaping the investment landscape, but its implications extend well beyond the most visible equity narratives.
AI is driving a surge in demand for infrastructure, power, real assets and financing solutions across the economy. Hyperscalers are accessing capital markets at scale, while second-order effects are rippling through supply chains, logistics, real estate and asset-backed finance.
For investors, this expands the opportunity set. Many of the most attractive opportunities sit not at the center of the AI narrative, but in the supporting structures that enable growth, often in parts of the market where capital is scarce and underwriting discipline still matters.
As private equity continues to shift from timing to execution, the gap between top performers and the rest of the market is likely to widen. In a higher-rate, tighter-liquidity environment, returns will increasingly be driven by disciplined entry pricing, operational rigor and the ability to exit with precision. Investors are already placing greater emphasis on realized cash returns over paper gains, while growing concentration in public markets is reinforcing the value of managers who can deliver true alpha.
In this reset, opportunity should favor managers with the scale, capabilities and track record to underwrite complexity and compound value across market cycles.
As portfolios grow more complex, flexibility has become a source of advantage — not as an abstract principle, but as a practical ability to adapt positioning over time.
Hybrid strategies let investors target equity upside while maintaining credit-style downside protection, helping to enable more precise and asymmetric positioning. The secondaries market offers access to diversified portfolios that help investors actively manage liquidity, duration and risk. As private market portfolios grow larger and more complex, secondaries are evolving into a more efficient, portfolio-level way to access exposure and allocate capital. And finally, structured solutions designed to optimize capital treatment and asset ownership are becoming an increasingly important theme, highlighting the premium investors place on flexibility and creativity in portfolio construction. Together, these tools give investors the ability to adjust risk, timing, and capital deployment as conditions evolve, rather than remaining locked into static allocations set under very different assumptions.
As we look forward in 2026, we believe a total portfolio approach is the appropriate response to the current regime. Public and private markets are increasingly intertwined, credit risk does not change based on its point of origination, and outcomes are driven less by exposure and more by how positions interact across the portfolio.
In this framework, we believe private assets are not alternatives. They are essential building blocks. Credit, equity and hybrid strategies are evaluated together based on their contribution to compounding capital, protecting downside and preserving flexibility across cycles.
Portfolios are systems, not stacks. We believe the institutions best positioned for the years ahead will be those willing to move beyond static allocation models toward adaptive portfolios — designed for markets defined by dispersion, complexity and change.
