KEY POINTS

• Trade, supply chain and cost shocks are widening the gap between businesses. This is increasing the gap between those that can adapt and those that cannot 
• Market tailwinds are less reliable. With borrowing costs higher and valuations offering less room for upside, returns are more likely to come from earnings growth—not from the market
• Operational improvements are more important than ever. Pricing, cost control and efficiency can help protect margins and create value as conditions become less predictable
• Resilient businesses stand out. Companies with essential demand, pricing power and clear opportunities to improve operations may be better positioned to navigate disruption

A Fluid Environment

The backdrop for private equity has shifted. Recent years have been marked by trade tensions, supply chain disruptions and swings in input costs. These forces are not constant—but when they occur, they tend to be larger and more disruptive than in the past. Recent shocks have reached levels well above prior periods (see below).

For private equity investors, the implication is clear: The focus has shifted from trying to predict the economy to owning businesses that can perform when costs rise and conditions become less predictable. As a result, the gap between businesses that can adapt and those that cannot is widening.

Why the Playbook Is Changing

In the post–global financial crisis low-rate environment, private equity often benefited from falling interest rates, ample leverage and rising valuations. That environment made it easier to generate strong returns, even without significant operational change. 

Today, those tailwinds are less reliable and available. Bain & Company estimates that achieving a typical return now requires roughly double the level of annual EBITDA growth compared with a decade ago (see below). In practical terms, more of the return must come from improving the business itself—not from favorable market conditions. This raises the bar for value creation.

From Market Tailwinds to Operational Control

As a result of the evolving market environment, operational improvement is becoming more central to value creation. Pricing, cost discipline, productivity and working-capital management are areas where management teams can take direct action to influence outcomes. 

A recent survey of senior private equity operators, primarily C-suite executives and partners in industrials and business services, shows a clear move toward operational levers (see below). A large majority expect operational improvements to become more important over the next 12 months, while far fewer expect gains from financial engineering or multiple expansion. In other words, value creation is increasingly being driven by actions inside the business. These characteristics can help businesses maintain margins even as conditions change.

Where This Matters Most

A heightened focus on operational improvements and margin expansion tends to favor companies with

•  Essential, mission-critical products or services
• A recurring revenue base and embedded customer relationships
• Clear opportunities to improve operations and enhance cash flow

These characteristics are often found in market-leading industrial and business services sectors, where demand is less discretionary and operational improvements can be implemented over time. 

The key is not to avoid exposure to change, but to invest in businesses that can adapt to it.

The Bottom Line

Successful private equity investments have always relied on improving businesses. What has changed is how central that improvement has become. In a world of larger shocks, returns are less likely to be driven by market conditions and more likely to come from what can be controlled. As dispersion increases, the ability to identify and improve resilient businesses may become more valuable—and more difficult to replicate.

Read More in our Alts Quarterly Q2 2026.

A WORD ABOUT RISK 

As an asset class, private credit comprises a large variety of different debt instruments. While each has its own risk and return profile, private credit assets generally have increased risk of default, due to their typical opportunistic focus on companies with limited funding options, in comparison with their public equivalents. Because private credit usually involves lending to below-investment-grade or non-rated issuers, yield on private credit assets is increased in return for taking on increased risk. 

Investments in real estate-related instruments may be affected by economic, legal or environmental factors that affect property values, rents or occupancies of real estate. 

Infrastructure companies may be subject to a variety of factors that may adversely affect their business, including high interest costs, high leverage, regulation costs, economic slowdowns, surplus capacity, increased competition, lack of fuel availability and energy conservation policies. 

Alternative investments often are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment. High-yield bonds are subject to interest-rate risk. When interest rates rise, bond prices fall; generally, the longer a bond’s maturity, the more sensitive it is to this risk. Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision. 

The information in this publication is not and is not intended as investment advice, an indication of trading intent or holdings, or a prediction of investment performance. Diversification does not guarantee a profit or protect against loss. The views and information expressed herein are subject to change at any time. Brookfield disclaims any responsibility to update such views and/or information. This information is deemed to be from reliable sources; however, Brookfield does not warrant its completeness or accuracy. 

The opinions expressed herein are the current opinions of Brookfield, including its subsidiaries and affiliates, and are subject to change without notice. Brookfield, including its subsidiaries and affiliates, assumes no responsibility to update such information or to notify clients of any changes. Any outlooks, forecasts or portfolio weightings presented herein are as of the date appearing on this material only and are also subject to change without notice. Past performance is not indicative of future performance, and the value of investments and the income derived from those investments can fluctuate.

FORWARD-LOOKING STATEMENTS 

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Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other similar words are intended to identify these forward-looking statements. Forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining our actual future results or outcomes. Consequently, no forward-looking statement can be guaranteed.

Our actual results or outcomes may vary materially. Given these uncertainties, you should not place undue reliance on these forward-looking statements. They are not intended to provide an overview of the terms applicable to any products sponsored by Brookfield Corporation and its affiliates (together, “Brookfield”). Information and views are subject to change without notice. Some of the information provided herein has been prepared based on Brookfield’s internal research, and certain information is based on various assumptions made by Brookfield, any of which may prove to be incorrect. Brookfield may not have verified (and disclaims any obligation to verify) the accuracy or completeness of any information included herein, including information that has been provided by third parties, and you cannot rely on Brookfield as having verified any of the information. The information provided herein reflects Brookfield’s perspectives and beliefs as of the date of this commentary.

INDEX PROVIDER DISCLAIMER 

The quoted indexes within this publication are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. There may be material factors relevant to any such comparison, such as differences in volatility and also regulatory and legal restrictions between the indexes shown and any investment in a Brookfield strategy, composite or fund. Brookfield obtained all index data from third-party index sponsors and believes the data to be accurate; however, Brookfield makes no representation regarding its accuracy. 

Brookfield does not own or participate in the construction or day-to-day management of the indexes referenced in this document. The index information provided is for your information only and does not imply or predict that a Brookfield product will achieve similar results. This information is subject to change without notice. The indexes referenced in this document do not reflect any fees, expenses, sales charges or taxes. It is not possible to invest directly in an index. The index sponsors permit use of their indexes and related data on an “as is” basis, make no warranties regarding the same, do not guarantee the suitability, quality, accuracy, timeliness and/or completeness of their index or any data included in, related to or derived from it, and assume no liability in connection with the use of the foregoing. The index sponsors have no liability for any direct, indirect, special, incidental, punitive, consequential or other damages (including loss of profits). The index sponsors do not sponsor, endorse or recommend Brookfield or any of its products or services. Unless otherwise noted, all indexes are total-return indexes.

KEY TERMS AND INDEX DEFINITIONS 

Bloomberg Global Aggregate Index is a market-capitalization-weighted index comprising globally traded investment-grade bonds. The index includes government securities, mortgage-backed securities, asset-backed securities and corporate securities to simulate the universe of bonds in the market. The maturities of the bonds in the index are more than one year. 

The Economic Policy Uncertainty Index for the United States reflects scaled frequency counts of articles in 10 leading newspapers (USA Today, the Miami Herald, the Chicago Tribune, the Washington Post, the Los Angeles Times, the Boston Globe, the San Francisco Chronicle, the Dallas Morning News, the Houston Chronicle and the Wall Street Journal). The construction of the modern portion of the index (1985–present) was based on monthly searches of each paper for terms related to economic policy uncertainty. Terms include “uncertainty” or “uncertain,” “economic” or “economy,” and one or more of the following: “Congress,” “legislation,” “White House,” “regulation,” “Federal Reserve,” or “deficit.”

Green Street Commercial Property Price Index (CPPI) is a time-series index published by Green Street, which tracks the value of U.S. commercial real estate properties. The index is based on transaction prices and appraisals of institutional-quality properties across major sectors, including office, industrial, retail and multifamily. It is widely used as a benchmark for changes in commercial property values over time. 

Lincoln Senior Debt Index is a quarterly index that tracks the fair market value of 1,600 middle market, direct lending credit investments every quarter across approximately 175+ fund clients in the U.S. and Europe.

MSCI World Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets. 

NFI-ODCE Index is an index of the investment returns (gross of fees) of the largest private real estate funds pursuing a core investment strategy that is typically characterized by low risk, low leverage (less than 40%), and stable properties diversified across the U.S.

Preqin Infrastructure Index captures in an index the return earned by investors on average in their private infrastructure portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter. 

Preqin Private Equity Index captures in an index the return earned by investors on average in their private equity portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter. 

Preqin Real Estate Index captures in an index the return earned by investors on average in their private real estate portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter. 

S&P 500 Index is a market-cap-weighted equity index of 500 widely held, large-capitalization U.S. companies. 

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