Unlocking private markets with Jon Diorio

Jon Diorio, Head of Alternatives for U.S. Wealth, offers insights into private markets trends and strategies to help you seek better diversification and new sources of return for your clients.

As private markets have grown larger in size and recognition, and more advisors are adding private assets to client portfolios - I often get asked the question ‘what’s next for private markets?’ Looking into 2026, I have six insights to share.

1. Advisors now have easier ways to remedy under-allocations to private markets

Advisors are adopting the use of private markets in client portfolios at a faster pace. More than half of respondents in our 2026 Advisor Trends Survey indicated that they were allocating to private markets in their client portfolios. But despite record flows into private markets in 2025 and a continued roll-out of new and easier ways to access them, advisors’ portfolio allocations remain lower than we would expect, averaging just 7%.

Why might allocations lag? I see a couple reasons. For one, investing in a private asset can be a cumbersome process. Suitability reviews, subscription documents, and tender offer mechanics are often paperwork intensive and iterative, consuming a significant amount of time and resources. But a more important – and addressable – reason is that most advisors do not feel confident with the complexity of implementing private markets in client portfolios. 68% of survey respondents expressed a need for additional education on portfolio construction involving private assets.

Adding private strategies alongside mutual funds and ETFs in the same account or model can be particularly challenging as transparency and liquidity limitations complicate the due diligence process for some private assets. Without true whole-portfolio integration, user experiences fragment and advisors may be challenged to deliver outcomes their clients are seeking. Today’s technology-enabled model portfolios, separately managed accounts (SMAs), and innovative fund structures make it easier for advisors to deliver private markets to their clients consistently and at scale.

2. Private markets may be a path to long-term wealth creation.

Long-term investors can find new opportunities in private markets to potentially enhance returns and improve portfolio outcomes. BlackRock’s Capital Market Assumptions project private equity, infrastructure and direct lending as top return drivers in portfolios over the next 10 years. Eligible investors can see BlackRock’s Capital Markets Assumptions here.

Other research from BlackRock suggests that portfolios that have intentionally integrated private market investments alongside public investments have the potential to enhance portfolio efficiency. Read the ‘Seizing the model moment’ whitepaper here.

3. Private market exposure can broaden the opportunity set as public markets see increased concentration

Many client portfolios are starting 2026 overly concentrated and potentially overexposed to large cap public stocks on the back of a historic run up. While public stocks may continue to rally in 2026, it may be time to broaden the opportunity set for client portfolios.

Risk has been concentrating in public markets due to recent growth in mega cap technology stocks and a shrinking number of public stocks over the past decade as private companies stay private longer. Among the number of total listed companies, the 20 largest names now represent greater than 30 percent of the market capitalization versus just under 14 percent in 2015. (See Exhibit 1)

Private markets offer access to smaller companies, which may have greater runways for potential growth. Comparing the distribution of enterprise values (EV) of companies acquired by private equity funds in 2024 against market capitalizations of global stock constituents of the MSCI ACWI IMI shows a significant difference in opportunities by company size.

More than 64% of private company deals in 2024 involved companies valued below $1 billion, while less than 3% of deals involved companies sized comparably to mega cap stocks at $10 billion+. Choosing the right private markets strategies may help advisors access differentiated return streams and the future drivers of economic growth.

Private equity, however, is not a monolith and there can be significant dispersion in returns. Manager and investment selection and the ability to drive returns through operational value-add and execution significantly influence private equity outcomes. Dispersion in private markets can be an advantage for the right manager, but selection is key.

4. A pickup in IPO and M&A could provide a tailwind for private markets

In 2026, we may see a more favorable interest rate environment for M&A and IPO activity, which may impact liquidity and return potential in private equity and event-driven strategies. Additionally, supportive policy and rapid technological developments widen the scope for strategic deal-making, which could lead to a larger, higher-quality pipeline for M&A. Taken together, these conditions can be conducive to a rebound in private equity performance relative to public stocks.

Historically, private equity has rebounded following periods of underperformance relative to public large cap stocks and having recently seen a record three-year period for underperformance, private equity may be due for a rebound.

After a period of subdued activity in the global private equity market, 2025 brought some indications of a potential recovery. In 2026, with the potential of lower policy interest rates, continued convergence on valuations between buyers and sellers of assets, and an ongoing structural shift in allocations from public to private markets, I believe we could see the beginning of a new cycle.¹

5. Putting credit in context: credit markets have endured headline turmoil before

The global private credit market has rapidly expanded over the past decade, reaching an estimated $2.2 trillion in assets under management in 2025.² The asset class has surpassed the size of the U.S. high yield bond market at $1.5 trillion, but there may be other parallels between these two credit markets as today’s headlines stoke fears about idiosyncratic private credit markdowns as we saw in the high yield market just over a decade ago.

In 2015, U.S. high yield credit spreads widened sharply (above 7%) as oil prices slumped and mounting liquidity concerns came to a head when a mutual fund limited shareholder redemptions. The Bank of America Merrill Lynch U.S. High Yield Index ended 2015 down roughly -4.6%, but stabilized and delivered a solid +17.4% return in 2016 and another +7.4% in 2017, respectively. The Cliffwater Direct Lending Index delivered positive total returns of 5.5% in 2015 followed by 11.2% and 8.6% returns in 2026 and 2017, respectively. The performance of both markets underscores how turmoil spurred by short-term credit concerns can be quickly followed by strong returns in the longer term.³

I still believe in the long-term opportunity in private credit despite the idiosyncratic risks dominating the current headlines. Historically private credit has offered a return premium over public credit reflecting the borrower’s willingness to pay a premium for certainty of execution, tailored deal structuring, and an illiquidity premium earned over a longer time horizon. (Exhibit 6)

I take a similar long-term view when assessing risk in private credit. Looking at trailing 12-month loss rates over the last 20 years, private credit loss rates are broadly in line with leveraged loans and high yield. (Exhibit 7). In recent years, more limited lender protections or covenants in leveraged loan documents have created more dispersion in capital preservation between broadly syndicated loans and private credit.

I see private credit as a strategic allocation for investors seeking income over the long term, rather than an opportunity for tactical trading based on market swings.

6. Persistent macro uncertainty, geopolitical risk and stock dispersion call for greater diversification

BlackRock Investment Institute’s 2026 Global Outlook suggests traditional portfolio diversifiers like long-term Treasuries may not offer the portfolio ballast they once did. Investors on the hunt for other portfolio hedges have shown a revived interest in gold; however, I see a further need for other long-term strategic hedges to fixed income, or what we like to call ‘diversifying your diversifiers’.

Against a backdrop of diverging earnings trajectories, policy shifts, and other uncertain macro dynamics, investors don’t have many easy passive options for diversification. Instead of spreading risk indiscriminately, investors may diversify more effectively by owning their risks more deliberately. Consider allocating to hedge funds or liquid alternative strategies that seek to take advantage of volatility and dispersion using a more granular active approach.

Additional resources

• The third edition of Unlocking private markets with Vidy Vairavamurthy
• 2026 Private Markets Outlook
• Investing in private markets

Questions?

To learn more, reach our team at 609-282-0050 or altshelp@blackrock.com

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