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Beyond the headlines—Private Markets · UBS Trending

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Even as headlines fade, private markets remain top of mind
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for investors.
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The latest CIO, Private Markets Quarterly, addresses
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the most important conversations around private credit growth,
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performance of private equity versus public markets,
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and record breaking infrastructure fundraising.
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Today, we're going to break down
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all of that data and more
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and what it means for your portfolio right now on
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UBS Trending.
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Hi everybody and welcome to UBS
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Trending I'm Anthony Pastore.
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Thanks for joining us here in the studio.
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Obviously private markets have been really top of mind.
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The headlines obviously, as many of you probably are aware,
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especially earlier
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this year and late last year,
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really kind of raised some alarm bells.
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And so I've amassed a great panel
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of CIO experts to talk us through.
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UBS has thoughts on the private market space.
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So let me start with you, Leslie Falconio.
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Thanks for being here.
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In the recent quarterly publication, you are discussing
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normalization within private credit
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versus pockets of vulnerability.
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And maybe you can elaborate on that a little bit
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because I want to break down sort of, you know, the,
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the complications of this topic for our viewers.
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And here's the other thing
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is, do you believe that
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the negative headlines
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have overly influenced performance, especially that we've seen
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over the past several months?
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Yeah, I mean, that's
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you know,
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when we came into this year in 2026,
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I mean, I think one of the major points
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that we were trying to drive home with our investors
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is to lower your expectations of return.
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Again, that's both in the public and private market.
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We came into 2026.
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Spreads are were very, very tight.
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And most of the value add or total return
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would actually happen through like manager dispersion.
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Right.
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The differentiation managers different differentiation
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manager total return would we felt would be the driver.
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Now when you talk about negative headlines right.
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And negative
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headline risk
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when you have this sort of snowball start going down the hill
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and building
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momentum and negative sentiment becomes so widespread,
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even funds that really shouldn't be hit start to get hit.
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So right now, I think going forward in particular,
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you're going to see
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even greater dispersion between manager total return.
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But the negative headlines have really been a big part.
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As to why we've had such headwinds in terms
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of some of the things within private credit.
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Now, you know, I'm not trying to downplay some of the
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the risk and potential
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that we that we might see and,
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you know, as you read in the report, there's no question
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during that 2120 type of era when we had,
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you know, this post, Covid, when fed funds rate
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were very, very low and a lot of money was coming into,
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you know, the key
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private credit
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was started to really kick in on a growth spectrum,
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particularly since during that time
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you were getting a lot and the public gripped the public side
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that a lot of these loans were,
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mostly technology, mostly software.
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And some of them were, as I would say, you know,
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I don't want to say
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that's a survival bias, but a lot of them are facing risk today
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simply because of a lot of this
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AI disruption is happened faster than what people thought.
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Now, that doesn't mean that
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every software load
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is going to have a problem, but it just means that the shift
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that we've seen in terms of, you know, AI, disintermediation,
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the the fed funds rate, you know, moving higher, which,
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which has caused some,
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you know, headwinds in terms of things like interest coverage,
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you know, and also large growth in private credit,
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which have gone up maybe about 15%,
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you know, over the past per year over the past five years,
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which is a really strong growth rate
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credit from a fairly low base,
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but still very strong in terms of percentage change.
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You know,
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you're going to have these sort of
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we call these pockets of vulnerability.
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But there's a difference between, you know, systematic stress
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and sector specific pressure.
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And that is
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I think
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one of the things that we're trying to convey,
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and unfortunately, one of the, you know,
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results of such negative sentiment
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as is a market doesn't differentiate, okay,
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it just takes that negativity and it kind of spilled through.
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Now we know that there are
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different funds who have different concentration rates.
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There are different funds that would say we would go
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into what we call during that 21 year time,
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those annual, recurring revenue loans, or are loans
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which really are based most on, you know, future cash flows
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than, say, EBITA growth. Right.
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And those kinds of loans are the ones that are facing,
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certain problems as we have this
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AI disruption being being pulled forward so much quicker
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than what people anticipated.
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Now every business model is different.
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We really don't know what the results
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are going to be in terms
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of, you know, AI, in terms of the survival, those who adapt.
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But in terms of our recommendation, what we've always recommended
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are those that are
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higher EBITA loans, higher growth,
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you know, obviously diversification.
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And we stayed on the sort of top spectrum of,
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you know, that the lending market now,
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which brings me to the second point
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or the third, which is very important as well.
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Everyone thinks private credit is just direct lending,
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and it's not.
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So if you have a $3.5 trillion around private credit market,
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maybe like one two, one four is in the direct lending space,
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there's many more sectors that we're going to be actually,
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we're going to talk about today
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that are beyond just that direct lending space.
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So I do think that the negative
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headlines have really played,
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into some of this underperformance more aggressively.
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No one would have occurred.
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But with that said, you know, and I and I cannot
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we can't emphasize this enough.
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If we try to do this heading into 2026,
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you really need to mitigate your expectation of returns.
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That 11%, that 12% that you saw two,
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two and a half years ago is not the market today, right?
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And with all the negative headlines that we've seen,
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we're not seeing necessarily this big blowout
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in terms of where these private credit spreads are.
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And we're definitely not seeing on the public side either.
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So spreads are still fairly compressed, right.
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But one of the things that we look for in
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how we structure the portfolio in terms of diversification
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and not having concentration risk,
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you know, is that we look for those things that have low
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net accruals.
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Now, everyone's coming from a very low base
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in terms of the net accrual side. Right.
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They just haven't been very high and returns
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historically have been much better
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in private credit than the public.
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Now that's backward looking.
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But still we think that management selection going forward
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will actually those that have
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sort of
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have done the due
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diligence had don't have a concentration
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risk are really going to be the winners.
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The last thing that I do want to say, which is very important,
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I wouldn't talk about redemptions
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like redemptions are the new sort of.
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They used to talk about paid kind.
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It's really about redemptions now right.
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And I can't emphasize enough.
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And there is a big report that came out that looked about that
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looked at how much retail is really owned by in private credit.
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It's like 10 to 13, 10 to 15%.
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It's the retail side that's selling.
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Right? It's the retail.
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It's not insurance
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companies or endowments or institutional funds.
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It's really has been that retail side.
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And we can't stress enough that when you look at these funds,
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whether they label it semi liquid or whatever
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nomenclature that is put on, these are long term holds, right?
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They're not meant to be traded versus public.
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These are long term holes.
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And you just simply compound
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that income over a long period of time.
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But the expectation
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that you're going to get in and out of these types of funds is
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really not what the these structures are about.
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And if that's the case that you want that,
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then this probably wouldn't
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be the type of investor that you want to do.
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But again, for those that want to have diversification in alts
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to get that compounding income,
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then we think private credit will do just fine.
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We think it's a little bit overdone in terms of negativity,
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particularly with the headlines.
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But again, you know, staying with higher quality
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and diversification is going to be key.
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Great.
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Thank you Leslie a great way to get us started.
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And clearly there's been a lot of headlines
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in the private credit space.
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So Jennifer
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I want to kind of move over a little bit
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because you know, when we look at private equity,
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there's been a lot of obviously this year has been volatile.
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We know that there's a lot going on with geopolitical conflict,
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the Iran War, etc..
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And you know, all the I talk software etc..
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So in some aspects public markets have outperformed privates
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so far this year.
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Is this still the time that you're
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recommending investors look
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and obviously being selective at the private side of the market.
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Because that's really probably a question
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that you're getting a lot of these days. Exactly.
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That's a great question.
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And clients
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come to us all the time saying public markets have outperformed.
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Why should we still do private markets and yes,
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one of the things we need to remember is that asset classes
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over time are cyclical and performance come in cycles.
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But over the long run, private equity
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has outperformed us large caps.
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So if we can pull up the data here for this cool chart
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that we put together, you can see that over market cycles,
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private equity has had a strong long term track record.
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And I want to point out to the dark purple here,
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which is the private equity,
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over the last 21 time periods shown here,
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private equity has outperformed and has been in the top
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1 or 2 position in 11 out of the past 21 years.
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And in the long term, on the on the right hand side,
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these are annualized returns over this, time period horizon.
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You can see that PE has annualized a return of 14.3%.
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And you compare that to you
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as large cap,
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which is right below that in that teal blue color there.
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U.S. large Cap equities
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has returned an annualized 10.7%,
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but with a much higher volatility.
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Now beyond the headline returns here,
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including privates also,
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benefits, diversification.
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And so if you include alternatives like private equity
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in a portfolio, it can improve returns and reduce volatility.
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So here we show a portfolio of 40% global
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equities, 30% U.S bonds and 30% alternatives,
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which is in the dark yellow with a black box around it
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that outperforms a traditional 6040 portfolio,
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which is in the, the lighter yellow there.
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And that you can you can see that
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that happens in a 16 out of the past 21 years
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here, out of the quote chart.
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And not only that,
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it it reduces your volatility here.
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I can just share some numbers,
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the diversified portfolio with alternatives, return
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at 8.1% annualized over the 8.6 of all
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and the traditional 6040 return, a 6.6% return and a 10.4 vol.
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So much higher vol, lower return.
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But then also in summary, you know, yes.
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Public markets has outperformed recently,
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but including privates in the long run still
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adds a bit of vacation and diversification to your portfolio.
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Its ability to enhance risk return, adjusted returns.
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We mentioned, but also the really key driver
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here, and Leslie has also mentioned
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that is maintain diversification.
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Manager selection is a very important,
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and having portfolio allocation
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that aligns with your liquidity needs. Right.
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So despite some of these near-term challenges, sort of a long,
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you know, growth drivers still remain intact,
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which is evidenced by that cool chart that you showed.
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Great. Thank you. Jennifer.
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Shaista, welcome, by the way, to the studio.
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And it's nice to have you here.
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And I want to
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because the infrastructure
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has certainly been
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a very interesting story for a quite a long time in the public.
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And now the private space we're talking about,
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we're going from roads and utilities now to data centers
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and things like that.
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So talk about the story of infrastructure
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within the also and the private space
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because it's really compelling.
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There's a lot to unpack there and a lot to talk about.
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Yeah.
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So I think, you know, obviously
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investor interest within infrastructure has,
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you know, really shown throughout 2025.
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You see the data here, over 300 billion raised in 2025.
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And in the fourth quarter alone,
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nearly 107 billion, of investor demand.
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Now keep in mind these are just drawdown infrastructure funds.
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So this isn't even including the inflows
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into our perpetual infrastructure vehicles as well,
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which is additional capital, being brought in.
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So I like to think about this is twofold.
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So on one hand you have the characteristics of infrastructure,
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which I think investors have really gravitated towards, right,
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in this market environment, in this higher
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inflationary market environment,
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infrastructure is an inflation hedge.
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Most sectors actually outperform in periods of higher inflation.
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Secondly, it's a really nice diversifier,
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low correlation across both public and private markets.
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And finally, it's pretty stable returns.
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Infrastructure in general will never be your highest returning
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asset class, nor should it be.
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But you know, typically historically we've seen about anywhere
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from 8 to 11%, of returns.
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So, you know, you have the characteristics.
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But then I think you also have these three themes
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we've been seeing, which we call the three DS of infrastructure.
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So digitalization, as you mentioned, right,
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the growth of AI, the build out of data centers,
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globalization, kind of the on shoring of manufacturing
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and other assets, and then finally decarbonization.
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Right.
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Renewable power.
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You know, in the US, there's been some headwinds,
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but within Europe, you know,
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most of the deal activity was concentrated there.
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So I think when you have these three themes combined,
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plus these characteristics,
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I think that's why you've seen such an interest
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within this asset class.
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And as Jennifer and Leslie have both mentioned,
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I think ultimately manager selection is key,
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when investing in infrastructure. Right.
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And there's been a lot of capital raised,
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particularly in the infrastructure space.
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I mean,
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I think probably attributed to the digitalization
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you were just talking about.
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So that's really exciting space to be focused on right now.
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I mean, privates in general,
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but especially on the infrastructure side,
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since there's so much of a shift now to the digitalization side.
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Right? So thank you very much.
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There's always a lot to unpack when we get all of us together.
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So, Leslie, first of all, thanks for being here with us.
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And I want to also encourage our viewers
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to make sure you're checking out our insights website
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at ubs.com/views.
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You can
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you can find the latest
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private markets quarterly publication there.
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And clearly there's a lot more detail in there.
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And we would encourage you then to follow up a conversation
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with your financial advisor
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to learn more about how it could fit into your portfolio.
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So make sure to take a look at that publication
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and also follow us on social media.
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We're on LinkedIn and Facebook.
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Plus the studio has its own
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Instagram channel at @UBSTrending.
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Please give us a follow there.
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Until next time I'm Anthony Pastore.
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We wish you a great rest of your day
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and remember to keep your eyes on what's trending.
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We'll see you soon, everybody. Thank you.
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So.
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Much.