Kasper:

Welcome to Balentic Edge, conversations that matter in private markets. I’m your host Kasper, investor, entrepreneur, and founder of Balentic. On this show, we explore the people, strategies, and ideas shaping private markets today. From GPs building tomorrow’s funds to LPs allocating in a shifting landscape. This episode is brought to you by Orca, an AI-driven compliant platform connecting the right GPs with the right LPs, smarter matches, faster decisions, and better outcomes.

As each year draws to a close, the private markets industry does what it always does. It publishes outlooks. Asset managers, private equity firms, consultants, private banks, advisors. Everyone has a view on what the next 12 to 24 months might bring. Different audiences, different incentives, different conclusions. But when you step back and read them together, something more interesting emerges. Patterns, areas of consensus, fault lines.

And increasingly a shared unease around liquidity, execution, and how returns are actually generated in a world that looks nothing like the last decade. This is a special episode of Balentic Edge based on our Balentic blog post, The Operational Era, Finding Liquidity and Value at High Altitude. The blog is not a single house view. It’s a synthesis, drawing on a broad cross-section of 2026 private markets outlooks from, amongst others, Adam Street, Apollo, BlackRock, Cambridge, Goldman Sachs, and Partners Group. The purpose isn’t to forecast markets, but to distill areas of consensus, points of divergence, and the practical implications for portfolio construction. Hopefully enlightening our listeners and readers, saving some time, and providing them food for thought as they head into 2026. To do so, I’m joined by Alex, Bellentic’s in-house private markets expert. Alex has spent time with the underlying outlooks across asset classes and geographies and has connected the dots between them. Alex, great to have you back. This feels like a proper zoom out conversation.

Alex:

It really is, Kasper. And honestly, when you read these outlooks back to back, the common themes are much louder than the differences.

Kasper:

Let’s start at the top. A year or two ago, everything revolved around the denominator effect. That acute anxiety has faded, but something heavier has replaced it. What changed?

Alex:

What changed is that the shock became structural. The denominator effect was violent but temporary. Public markets fell, allocations blew out, everyone panicked. Today, public markets have recovered. Allocations have stabilized, but private market exits haven’t reopened meaningfully. So LPs are left with portfolios that look healthy on paper, but generate very little cash. Capital calls are still flowing, distributions are not.

And that mismatch has now persisted long enough to force real behavioral change.

Kasper:

So it’s less about allocation optics and more about cache flow.

Alex:

Exactly. LPs don’t fund liabilities with TVP, let alone IRR. They fund them with DPI. And DPI has become the scarcest resource in the system.

Kasper:

One phrase that comes up repeatedly is investing at high altitude. Why does that framing resonate so much right now?

Alex:

Because it captures the asymmetry perfectly. Valuations remain elevated relative to history, but the environment around them has changed completely. Rates are no longer falling. Financing is no longer cheap. Growth is slower. At altitude, you don’t have a margin for sloppy execution. Small errors, overpaying, misjudging growth, weak operating plans, have outsized consequences. And that’s why dispersion between managers is accelerating.

Kasper:

So this is where the gap between top quartile and median really opens up.

Alex:

Yes, the tide is no longer lifting all boats. You either know how to operate in thin air or you don’t.

Kasper:

Let’s talk liquidity because it underpins almost everything in the synthesis. Why has liquidity become the defining variable?

Alex:

Because traditional exit routes are constrained at the same time portfolios are maturing. The IPO window is selective. Strategic and A is cautious. Sponsor-to-sponsor deals exist, but they recycle assets within the system rather than releasing cash. That’s why secondaries and continuation vehicles have gone from niche tools to core infrastructure.

Kasper:

And that applies to both LPS and GPS.

Alex:

Exactly. LP-led secondaries are now used proactively to rebalance portfolios, manage concentration, and generate liquidity for new commitments. On the GP side, continuation vehicles have become the default solution for holding on to high-quality assets while offering optional liquidity. But, and this is important, liquidity is now being manufactured, not discovered. That introduces complexity, valuation sensitivity, and governance risk.

Kasper:

Let’s stay with continuation vehicles for a moment. They’re clearly here to stay, but LP discomfort hasn’t gone away.

Alex:

No, and it shouldn’t. CVS solve a real problem, but they also create conflicts that didn’t exist at scale before. LPs are often asked to re-underwrite assets they already own on tight timelines with asymmetric information. The GP sits on both sides of the transaction. That raises questions around pricing, fee layering, and process integrity. It puts pressure on LP governance frameworks.

Kasper:

So CVS aren’t inherently bad, but they demand sophistication.

Alex:

Exactly. In 2026, CVs are less about innovation and more about execution quality.

Kasper:

One of the strongest consensus points across the outlooks is around operational value creation. What’s changed in how LPs view this?

Alex:

Operational Alpha has moved from nice to have to existential. The old return drivers, multiple expansion and cheap leverage, are gone. Returns now have to be earned inside the business. That means revenue growth, margin expansion, pricing power, procurement, technology enablement, and sometimes careful bolt-on &A. LPs are no longer impressed by generic value creation slides. They want evidence, teams, track records.

Kasper:

So the diligence lens has shifted.

Alex:

Yes, LPs are underwriting operating capability, not just sector exposure.

Kasper:

AI dominates every outlook, but the synthesis draws a clear line between hype and investability. Explain that distinction.

Alex:

The hype sits in software valuations and application level narratives. The investable reality sits in physical infrastructure. AI requires massive amounts of power, data storage, cooling, and grid resilience. That creates immediate demand for data centers, energy generation, grid upgrades. For infrastructure and real asset investors, this is a capital intensive, long duration opportunity with contractual cash flows.

Kasper:

So AI becomes an infrastructure story.

Alex:

Exactly. It’s less about picking the winning model and more about owning the bottlenecks everyone depends on.

Kasper:

Private credit has been one of the big winners of the last few years. The outlook suggests that FaZe is evolving.

Alex:

Private credit has matured, spreads have compressed, particularly in the upper middle market, and competition is intense. As a result, capital is rotating toward asset-based finance, lending against pools of assets rather than corporate balance sheets. That offers diversification and different correlation characteristics, but it also requires specialized underwriting.

Kasper:

And risk hasn’t disappeared.

Alex:

No,

Defaults are low, but liability management exercises are becoming more aggressive. Complexity, not credit, is the risk vector.

Kasper:

Infrastructure consistently stands out as a preferred asset class. Why?

Alex:

Because

It sits at the intersection of the biggest secular themes, digitalization, decarbonization, and deglobalization. But valuations are rising, which is pushing investors into development and value-add strategies rather than pure core. Real estate, by contrast, remains deeply bifurcated. Logistics and residential benefit from structural tailwinds. Office remains challenged. Data centers are the crossover. Part infrastructure, part real estate.

Which tells you where capital conviction really sits.

Kasper:

Let’s bring this firmly back to LP behavior, what fundamentally has to change.

Alex:

LPs can’t be passive allocators anymore. Commitment pacing models assumed distributions would recycle capital. That assumption no longer holds. LPs are becoming active balance sheet managers, using secondaries, scrutinizing DPI over TVPI, questioning valuation practices, and pushing back on synthetic liquidity via NAV loans. Governance capacity is becoming a competitive advantage.

Kasper:

So institutional maturity really matters.

Alex:

Absolutely. The gap between well-resourced LPs and everyone else is widening.

Kasper:

Before we wrap, let’s talk allocation implications. What stands out?

Alex:

First, LPs shouldn’t stop committing. Periods like this often produce strong vintages. Second, secondaries move from opportunistic to strategic. They offer liquidity, diversification, and faster cash flow profiles. Third, in credit, rotating some exposure into asset-based finance makes sense from a diversification perspective. And across private equity, the emphasis should be on managers with demonstrable operational depth, not financial engineering.

Kasper:

Let’s distill this for listeners. Liquidity is no longer a by-product. It’s a strategy. Operational value creation is non-negotiable. AI’s real opportunity is physical infrastructure. Dispersion is structural. Manager selection and governance matter more than ever. If you want the full synthesis behind today’s discussion, you can read the operational era, finding liquidity and value at high altitude on Balantic Insights. And if these conversations help your thinking, subscribe to Balentic Edge wherever you listen. Private markets aren’t broken, but they are metabolizing. The sugar rush of cheap capital has faded. What remains is the harder, healthier work of operating businesses, managing liquidity, and allocating capital with discipline. For LPs and GPs alike, success in 2026 won’t come from being broadly allocated. It will come from understanding where liquidity is created, where value is real, and where complexity hides risk.

That’s it for this special episode of Balentic Edge.