VEGA Investment Solutions private assets – Q3 2026 quarterly views

Balancing opportunities, risks and resilience

Markets continue to navigate a backdrop of resilient global growth, moderating labour market momentum and persistent inflationary pressures. Higher-for-longer interest rate expectations, combined with concerns surrounding European fiscal sustainability, have maintained volatility across government bond markets.

Private Equity market remains structurally challenged in 2026, with fundraising on track for a fifth consecutive annual decline and LPs increasingly concentrating capital in large, established platforms. Deal activity has proven more resilient, continuing across buyouts, energy transition, and AI, though underwriting standards have tightened. Exit activity improved but remains far from normalized, with mega-exits dominating realized value and a large backlog of aging portfolio companies still weighing on distributions. Looking ahead, the environment increasingly favors scale and asset quality, with value creation driven by operational excellence rather than leverage.

Private credit, while still offering attractive yield, is operating in a more uncertain environment. Higher rates continue to support carry but are accompanied by a gradual deterioration in certain risk indicators. Stress observed in selected U.S. issuers and concerns around the liquidity of certain retail vehicles have reignited questions about the asset class. By contrast, the European market appears more resilient, supported by a more institutional investor base, although selectivity remains essential in a context of increasing dispersion.

Infrastructure market demonstrated notable resilience in 2026. While fundraising weakened materially in the first half as investors favoured scaled and well-established managers, transaction activity remained supported by strong structural demand for energy, grid and digital infrastructure assets. Capital allocation increasingly gravitated toward value-add opportunities, with energy and digital themes further reinforced by national and regional sovereignty priorities.

Real estate markets are showing continued recovery in Q2 2026, with transaction activity gradually picking up. But the momentum remains fragile and closely tied to the path of interest rates. Trends are still uneven across segments: healthcare, premium hospitality and data centers continue to benefit from strong structural tailwinds, while retail momentum is moderating after its recent rebound. Logistics is facing softer fundamentals, while the office sector continues its gradual rebalancing.

Private equity

PE market continues to navigate a structurally more demanding environment, with divergences across fundraising, deal activity, and exit dynamics becoming increasingly pronounced through Q2 2026.

European PE demonstrated notable resilience in Q2, with deal activity increasing in value quarter-on-quarter while deal count remained broadly flat. In contrast, the US market experienced a sharp contraction, with PE deal value declining year-on-year in Q2 2026, and software transactions falling particularly sharply on the same basis.

Against this backdrop, fundraising remains the most structurally challenged segment of the market. Fundraising cycles have lengthened significantly, and the flight to quality among LPs remains pronounced. Timelines continue to stretch for smaller and newer managers, while capital concentration keeps intensifying, with funds exceeding $1 billion now capturing nearly 80% of all commitments (source PitchBook, Global june 2026). Emerging managers face particularly difficult conditions as LPs continue to favor larger, established platforms.

Dealmaking has proven more resilient than fundraising. Capital deployment continues across buyouts, energy transition, AI, and structurally growing sectors. That said, underwriting standards have tightened, with greater focus on valuation discipline, cash flow resilience, and operational value creation.

Add-on investments continued to drive activity, accounting for a significant share of total deal count, and take-private transactions remained a key theme. Should the current pace be maintained, 2026 is on track to be a record year for European PE by deal count.

Liquidity conditions have improved but remain far from normalized. Global exit activity increased during H1 2026, supported by several large realizations and continued demand for high-quality assets. Nevertheless, mega-exits still account for a disproportionately high share of realized value, while a substantial backlog of aging portfolio companies persists. Exit-to-deal ratios continue to decline, limiting distributions and further weighing on fundraising dynamics. Holding periods continue to extend, with a growing proportion of PE-backed companies being held well beyond historical norms, reflecting ongoing exit market constraints.

Valuation dynamics remain challenging in a higher-cost-of-capital environment. Purchase multiples have held up relatively well, particularly for premium assets, but returns increasingly depend on operational execution rather than financial leverage. Sector dispersion continues to widen, with healthcare, tech services, financial services, and infrastructure-related businesses maintaining premium valuations.

Looking ahead, the outlook is cautiously constructive but increasingly selective. Financing markets remain supportive and dry powder abundant; however, a broad recovery in fundraising and liquidity is unlikely without a more meaningful acceleration in exits. Sponsors increasingly recognize that realization discipline will be essential to restoring capital flows.

More broadly, the current environment favors scale, asset quality, and operational excellence. Companies with strong market positions, pricing power, and visible growth continue to attract capital and command premium valuations, while weaker assets face longer holding periods and more difficult exit conditions. Value creation is increasingly driven by operational improvements, digital transformation, and revenue growth initiatives.

Looking across strategies, buyouts remain the dominant segment, supported by continued demand for mid-market and large-cap transactions. Venture capital activity has become increasingly concentrated around artificial intelligence and a limited number of technology themes. Meanwhile, secondaries have emerged as a structural pillar of private markets, with GP-led transactions, continuation vehicles, and fund-stake securitizations playing an ever-more-important role in liquidity management.

Private debt

Private credit continues to offer a significant illiquidity and complexity premium relative to public corporate bond markets. The asset class remains predominantly floating-rate, and elevated inflation risks (amplified by geopolitical tensions and Middle East-related pressures) continue to support attractive carry for investors. Traditional bank lenders, particularly in Europe, remain constrained by regulatory requirements to reduce their lending exposure, sustaining the structural space for private players to meet corporate financing needs. Demand for flexible, tailor-made financing solutions remains solid despite the uncertain macroeconomic backdrop.

H1 2026 confirmed and deepened the stress signals that emerged in fall 2025. Fundraising was broadly dynamic in the first half, yet deal activity remains under pressure, as borrowers continue to cope with higher rates (both in the Eurozone and increasingly in the US). Q2 specifically was marked by a sharp contraction in US direct lending issuance, which fell 55% from Q1 levels according to PitchBook LCD.

Default concerns have also intensified. Credit events that first surfaced in fall 2025 have since spread across multiple sectors with several cases involving alleged fraudulent activity and instances of creditors taking control of companies in the US. This has weighed on investor sentiment, particularly in retail channels: for the first time, redemptions from non-traded BDCs exceeded fundraising in a single quarter, with a large number of BDCs activating their quarterly gates. Retail investor concerns center on software sector exposure and defaulted issuers.

Regulatory scrutiny has intensified in parallel. A subsequent ECB stress test concluded that European insurers and pension funds would likely be hit harder than banks in a severe private credit shock scenario. That said, balance sheet exposure remains measured (around 5% per EIOPA 2024 data) valuations have not suffered material downgrades, and the overall credit quality of the market remains sound. We maintain our view, consistent with the ECB's analysis, that private credit does not represent a systemic risk at this stage, given the continued dominance of institutional investors.

Despite turbulence in US retail vehicles, institutional fundraising has remained more resilient, particularly in Europe. Investor flows are increasingly gravitating toward European managers and issuers, reflecting a preference for more conservative credit cultures and less SaaS-heavy portfolios. Europe's structural characteristics represent genuine opportunities for GPs able to navigate this complexity.

Competition and consolidation among GPs continue to intensify, particularly in the US. In Europe, the market remains competitive but fragmented.

Direct lending remains the core strategy within private credit, though interest in specialty finance and secondary funds is growing. In Europe, demand for evergreen structures such as ELTIFs and LTAFs remains strong, supported by an evolving regulatory environment favorable to private assets, including the Green Industry Act framework in France coming into force by end-2026.

In terms of positioning, we continue to prefer European funds and issuers over their US counterparts. Selectivity across sectors, structures, regions, vintages, and general partners remains essential for capital preservation in an environment where performance dispersion is expected to increase significantly. A preference for the most senior tranches, robust covenant packages, and GPs with a demonstrated credit analysis culture are, in our view, the key determinants of resilient returns going forward.

Infrastructure

In a 2026 environment marked by geopolitical tensions, still-elevated inflation, and growing needs related to electrification, the energy transition, and digitalization, private infrastructure continues to demonstrate its resilience, its ability to generate visible income streams, and its increasing strategic importance. Fundraising, however, slowed markedly in the first half of 2026. The market raised $40.8bn, compared with $126.3bn a year earlier, reflecting a more selective environment for managers. Investors remain active but are increasingly favoring established platforms and assets offering strong cash flow visibility. Geographically, Europe led fundraising with $17.4bn, ahead of multi-regional strategies and North America, although the largest fundraising requirements remain concentrated in global vehicles (Infrastructure Investor, Sep. 2026). By contrast, deal activity remained strong, with around $330bn of completed transactions, mainly in the United States (CBRE, Jun. 2026). This momentum is being driven by growing demand for power capacity, grid reinforcement, the development of flexible gas, battery storage, and digital infrastructure. The market is increasingly focused on assets capable of responding quickly to sustained demand growth while also offering secure revenues, often backed by long-term contracts. In digital infrastructure, continued hyperscaler investment continues to provide strong support for data centers.

Investor preferences are also shifting toward strategies that are more yield-oriented and focused on value creation. Value-add accounted for 52% of capital raised, ahead of core-plus at 20%, while core declined to 9%. From a sector perspective, energy remains the main fundraising driver: renewables represented 58% of sector-focused fundraising, ahead of power & transmission at 23% and transport at 11%. Digital infrastructure still accounts for a smaller share of fundraising but remains highly sought after thanks to structural trends linked to AI and digitalization (Infrastructure Investor, Sep. 2026).

The appeal of infrastructure is also being strengthened by sovereignty considerations. Energy assets, grids, storage, and digital infrastructure all play a central role in security of supply, economic resilience, and digital sovereignty. In a context of tensions affecting global energy flows, these assets are taking on a strategic dimension that goes beyond return considerations alone.

Finally, infrastructure remains attractive in an inflationary environment thanks to revenues that are often inflation-linked, a degree of pricing power, and, in the case of infrastructure debt, structures that are frequently floating-rate. Gross equity returns remain close to 10%. Equity valuations have normalized around their historical averages, limiting the scope for further re-rating, while debt retains a defensive profile. Future performance should therefore rely more on the quality of operational execution, earnings growth, and value creation, rather than on simple asset revaluation.

Real estate

European real estate markets showed continued recovery in Q2 2026, building on the momentum observed in Q1. Transaction activity was supported by renewed institutional appetite, though the pace of recovery remains uneven across segments, and ongoing geopolitical uncertainty, particularly its impact on interest rates, continues to create headwinds.

The difference across segments has become more pronounced. Data centers continue to attract the strongest investor interest, driven by AI-related demand and a persistent gap between supply and available capacity. Performance dispersion across real estate segments remains substantial: data centers have delivered strong returns year-to-date, compared with low returns for offices.

The healthcare real estate sector remains a standout growth driver, supported by defensive fundamentals (with high occupancy rates, long leases, and rent indexation) as well as demographic pressure.

The living sector's momentum is sustained by a supply-demand imbalance that continues to put upward pressure on rents.

The hotel sector continues to demonstrate strong momentum, with investors favoring prime and luxury assets supported by resilient international tourism demand.

Retail, despite its rebound at the end of 2025, saw momentum slow in Q2 2026, with investment volumes stabilizing.

The logistics sector remains fundamentally resilient, although rising vacancy rates, moderating rental growth and higher financing costs are creating a more challenging investment backdrop.

The office segment remains polarized. Prime rents continue to rise in core locations, but overall vacancy rates remain elevated. The outlook for vacancy normalization by 2030 remains the base case, though the timeline is sensitive to the pace of return-to-office adoption and broader economic conditions.