Private market targets vary as denominator pressures ease

This analysis is by Bloomberg Intelligence Private Market Strategist Reza Hasan. It appeared first on the Bloomberg Terminal.

Institutional investors lean into steadier, more scalable strategies in 2026, according to a Bloomberg Intelligence survey of approximately 102 respondents.Infrastructure — especially the data-center build-out — remains atop conviction, while artificial intelligence continues to shape venture investing. Deal activity is poised to pick up, but a sluggish exit environment is pushing firms toward continuation funds. In private credit, investors favor direct lending and asset-backed finance, even as worries about credit quality, defaults and macro risks linger.

Allocations and strategies

Asset allocation in private markets remains highly fragmented, with no one-size-fits-all approach. Denominator pressures from 2022 and 2023 have largely eased, with 64% of respondents now at target and a further 17% below. Still, 18% of LPs report being over allocated to private markets.

Target exposures cluster in the 11% to 20% range for about half of respondents, though a long tail extends well beyond 20%. More than 10% of LPs surveyed have targets above 50%.

Infrastructure sentiment strong, led by digital, utilities

Survey respondents show strong sentiment across most infrastructure sectors, with digital (77%) and utilities (74%) viewed as the most attractive. Water and waste (71%), energy transition (70%) and transportation and logistics (68%) also receive broad support, indicating high conviction across both traditional and next-generation infrastructure segments. In contrast, social infrastructure stands out as a clear outlier, with only 19% of respondents viewing it as attractive and 81% rating it as less attractive.

The results suggest respondents are highly constructive on infrastructure as an asset class, given its strong growth potential, demand visibility and ability to mitigate risk while offering solid return profiles.

Energy transition returns seen moderate, skewing lower risk

Respondents indicate moderate return expectations for energy transition funds, with the largest share targeting gross IRRs of 10-12% (35%), followed by 12-14% (23%) and 14-16% (15%). In total, approximately 85% of respondents expect returns below 16%, pointing to a consensus around more conservative, infrastructure-like return profiles for this strategy. Notably, the same share of respondents (11%) expect markedly different outcomes, with equal proportions targeting sub-10% IRRs and above 20%.

Taken together, the results suggest investors are calibrating expectations toward steadier, lower-risk return outcomes, consistent with the evolving, institutional nature of the energy transition space.

Oil and gas sees limited demand

The survey shows limited appetite for oil and gas investments, with a clear majority (72%) indicating they do not plan to allocate to the sector. Among those that do, interest is modest and concentrated in midstream (23%), followed by upstream (17%) and downstream (11%).

The relatively low participation across all sub-sectors underscores a cautious stance toward oil and gas overall. Where respondents are engaging, the tilt toward midstream suggests a focus on cashflow visibility and lower volatility rather than higher-risk, commodity-sensitive exposure.

Private credit demand centers on direct lending, core strategies

Participants show strong interest concentrated in a core set of private credit strategies, led by direct lending (58%), followed by asset-backed finance (46%), special situations (36%) and distressed/opportunistic strategies (34%). These four categories together account for a significant majority of preferences, highlighting a clear focus on established, scalable strategies. Beyond these core areas, interest is more distributed. Infrastructure credit and niche strategies (both 28%), as well as real estate credit and CLOs (both 22%), attract moderate attention.

At the lower end, mezzanine (8%), NAV financing (8%) and SRT (4%) lag, suggesting respondents are prioritizing more traditional, higher-conviction strategies over more specialized or complex areas.

Private credit risks center on quality, defaults, macro pressure

Survey respondents’ concerns about private credit in 2026 center on credit fundamentals, led by deteriorating credit quality (62%) and rising defaults (57%). Macroeconomic headwinds (40%) and underwriting failures (39%) also rank prominently, reinforcing a strong focus on downside risk and the potential for stress as market conditions evolve.

Additional concerns include structural risks (37%) and spread compression (36%), while retail crowding (29%) is a secondary consideration. Regulatory burden (9%) and other factors (3%) are viewed as relatively minor. The results underscore heightened awareness of credit risk, with respondents primarily focused on asset quality, underwriting discipline and the broader economic backdrop.

Bloomberg Terminal subscribers can access the full Bloomberg Intelligence Survey analysis via BI <GO>.