Private markets are shifting into a more selective phase, with returns increasingly set to hinge on asset quality, income resilience and operational performance rather than a broad recovery, according to Aberdeen Investments.
Aberdeen's latest Private Markets House View argued that rising performance dispersion is increasing the importance of manager selection, sector positioning and diversification. The report comes from Aberdeen's private markets solutions team, which also runs Aberdeen's Global Private Markets fund alongside discretionary multi-strategy, evergreen private market mandates.
Nalaka de Silva, head of private markets solutions at Aberdeen Investments, said: "Private markets are entering a more selective phase.
"In this environment, fundamentals matter more than ever, from the quality of the underlying assets and the strength of income generation to disciplined capital deployment. As a result, manager selection and strategy are becoming increasingly important drivers of outcomes."
Aberdeen described global growth as resilient overall but unevenly spread. It said the US economy continues to outperform, while the UK and Europe contend with softer consumer spending, tighter financial conditions and inflation sticky enough to keep interest rates elevated.
Against this backdrop, Aberdeen put the five-year internal rate of return (IRR) for infrastructure at around 9-11% for core strategies and 12-15% for core-plus strategies. It defines core assets as lower-risk holdings offering reliable, long-running cash flows, while core-plus strategies carry added complexity, higher growth potential or greater exposure to transition-related themes.
Global infrastructure deal value totalled around $327bn in the first quarter, up 10% year-on-year, though on fewer transactions, suggesting a shift towards larger, higher-quality deals. European deal value fell 27% year-on-year to $71.7bn.
Aberdeen said infrastructure returns are leaning more on cash income than rising valuations, a change it tied to higher interest rates. North America has been the most active region, led by power generation and data centre deals.
The asset manager expects capital to keep flowing into digital infrastructure and energy transition assets, with a widening gap between stronger and weaker-performing segments.
For real estate, Aberdeen foresees a five-year IRR of around 6-8% for core strategies and 10-15% for value-add strategies. It said future performance will hinge less on a broad cyclical upswing and more on income resilience, asset quality and sector selection.
Global direct investment in real estate came to around $216bn in the first quarter, up 18% year-on-year. European all-property yield spreads stood at around 150 basis points over bonds in early 2026, which Aberdeen described as less attractive than during the peak of the repricing cycle.
Regional trends diverged, according to Aberdeen. Europe's recovery is holding but fragile, aided by steady leasing demand and limited new supply, while APAC has gained momentum with a pickup in transactions and the UK market looks steadier, helped by settling values and dependable income.
Aberdeen expects that divide to sharpen at the sector level too, with industrial and retail assets benefiting from more predictable cash flow while residential and office properties face greater exposure to financing costs and market-specific pressures.
The firm drew a distinction within private credit: some areas, direct lending among them, warrant closer examination, while other segments benefit from real-asset backing or stronger credit quality. It said the sector overall remains structurally supported by a persistent gap between capital demand and supply, especially as banks stepping back from lending.
Aberdeen described its stance on private credit as "selectively positive", forecasting five-year returns of around 8-12% for direct lending and around 6-8% for investment grade private credit.
In the US, direct lenders completed 199 deals worth a combined $71bn in the first quarter of 2026. Leveraged buyout activity slipped to its lowest level in several years, though cumulative volumes for the year remained slightly ahead of the same point in 2025, reflecting fewer but larger deals.
European direct lending volumes fell to around €8.3bn across 35 deals, a year-on-year decline of 33% by value and 24% by number of deals.
Aberdeen said pricing gaps between lenders are widening and defaults are starting to climb from historically low levels, underscoring the case for careful underwriting. It sees the strongest opportunities in mid-market lending and more specialised areas such as special situations and opportunistic lending.
Private equity carried leftover momentum from late 2025 into the new year, Aberdeen said, before activity slowed as geopolitical risks unsettled investors. It expects a five-year IRR of around 10-12% for buyout strategies and around 12-15% for venture capital.
US private equity deal value dropped 18.3% to $260.2bn in the first quarter, while the European market saw a 22.5% quarterly decline. Aberdeen said it was "selectively positive" and "cautiously positive" on the asset class.
Add-on acquisitions made up 71.4% of European buyouts, the highest share in a decade. Investors are increasingly turning to secondary sales for liquidity, a shift Aberdeen linked to growing demand to recycle capital, while secondaries reached a record 19% share of fundraising in the same quarter.
Buyout pricing has settled at elevated levels, with multiples running at 12.6x globally and 11.9x in the US. The group said this reflects fewer, better-quality deals being completed rather than any broad improvement in market conditions.
It expects future gains to rely less on rising valuation multiples and more on operational improvements, with investors continuing to favour technology-driven and AI-related businesses.
De Silva added: "We continue to see opportunities in structurally supported sectors such as digital infrastructure, the energy transition and technology-enabled businesses. However, dispersion across sectors and assets is rising, reinforcing the need for a highly selective approach to capital allocation."