Meeting Power Needs

The rise of AI and electrification is intensifying the need to generate and transport energy. Electricity demand is climbing sharply across all regions, driven by both digitalization and the onshoring of manufacturing, while existing transmission infrastructure struggles to keep pace.

More than 70% of global transmission lines are over 25 years old, with interconnection queues for new renewable projects stretching close to a decade.⁴ Analysts estimate that annual grid investment will need to exceed $600 billion by 2030 to replace aging assets,⁵ integrate renewable generation and ensure reliability. Hence, the need to “de-bottleneck” the grid has become a defining investment theme, creating opportunities for large-scale partnerships and private capital solutions across the energy value chain.

We are finding that the strongest opportunities lie in grid modernization and transmission upgrades to relieve interconnection backlogs, alongside utility-led capex programs that offer regulated, inflation-linked returns. An “any-and-all” approach to baseload generation—combining natural gas and nuclear with onshore wind, solar and storage—will be vital to meeting reliability needs. At the same time, behind-the-meter generation for data centers and industrial users is emerging as a key enabler, shortening time-to-power and bypassing grid bottlenecks while linking directly to the digital infra- structure buildout.

Resilient Performance

Independent of geopolitical or macroeconomic uncertainty, infrastructure investments are inherently built to weather market cycles. The sector’s resilience stems from its core characteristics: perpetual, long-lived assets with high barriers to entry; contracted or regulated revenue streams that are typically indexed to inflation; and stable, predictable cash yields with low correlation to public markets.

These structural features provide inflation protection and steady performance across environments. While short-term frictions may arise, they do not alter the fundamental trajectory of growth. The essential and enduring nature of infrastructure underpins its strength through periods of cyclical volatility.

Building for Global Growth

We believe that supportive financial conditions and accelerating secular themes are positioning the global infrastructure sector for enduring growth. The AI buildout cannot occur without clean, reliable power, grid modernization cannot proceed without private capital, and the reindustrialization of economies cannot succeed without the digital and energy infrastructure to support it. This convergence is creating a once-in-a-generation opportunity for disciplined, long-term investors to fund the physical backbone of the global economy’s next phase (see Figure 2).

Across the power, data and manufacturing eco- systems, the scale of required capital far exceeds what corporates and sovereigns can fund alone. This dynamic is driving a wave of large-scale partnerships, joint ventures and privatizations, as governments and hyperscalers seek off-balance-sheet solutions. These collaborations are enabling the rapid delivery of essential infrastructure—from sovereign compute facilities and AI ecosystems to behind-the-meter generation and next-generation manufacturing capacity.

Taken together, the sector’s resilience, rising allocations and deepening strategic relevance underscore an outlook that has rarely been more constructive. As we enter 2026, it’s clear that the Three Ds are no longer separate megatrends, they are the converging foundation of global growth, defining the opportunity set for the decade ahead.

再生可能エネルギー&トランジション：需要増加に応える電力供給の拡大

電力は、わずか数年のうちに世界的な戦略的優先事項となりました。現在では、政府・企業の双方にとって、成長を妨げるボトルネックとなっています。

2026年の主なテーマ

• 世界の電力需要は、デジタル化、電化、工業化の同時進行を背景に、供給を上回るペースで加速しています。
• 電力はすでに世界経済成長のボトルネックとなっており、戦略的な喫緊の課題です。企業および政府は、エネルギー安全保障と国内供給確保を最優先に位置づけ、再生可能エネルギー、原子力、天然ガスへの投資を拡大すると同時に、電力網インフラの更新を進めています。
• 将来の需要を単一技術で賄うことは現実的ではありません。前例のない需要拡大に対応するには、「あらゆる手段を駆使した」アプローチが不可欠です。具体的には、経済性と導入スピードで先行する再生可能エネルギーを中核に、柔軟性を担う蓄電池、規模と信頼性を提供する原子力、そして安定供給を支える天然ガスを組み合わせていく必要があります。これらの技術を同時並行でスケールさせるには、今後10年、さらにはその先を見据えた大規模かつ継続的な投資が求められます。

While our 2026 view is anchored in the same fundamentals that defined last year’s outlook, the investment landscape has evolved in important ways. Demand is accelerating, increasing the opportunity for those that can provide scale energy solutions to global grids, with cost, speed to market and energy security being the key priorities when investing in new energy capacity.

Reflecting the world’s need for “any-and-all” energy solutions, global power investment is expected to reach $3.3 trillion in 2025, with over 60% directed toward renewables, storage and grid optimization.⁶

Energy Is a Clear Strategic Priority

Energy demand is shaped by three powerful forces: deglobalization, as nations pursue energy independence; digitalization, as AI and data storage increase demand for reliable power; and decarbonization, as industries electrify and invest for sustainable growth. Each is accelerating towards the same outcome: delivering low-cost, reliable and scale energy, faster than ever before.

To achieve growth and partake in the evolving economy, governments and corporates are onshoring critical supply chains and investing significantly in domestic energy sources. In particular, economic drivers are reinforcing investment in low-carbon energy systems because they deliver the most affordable and secure power. The world’s largest corporations are seeking to procure low-cost, quick-to-market and scalable power to ensure their competitiveness and continue to partner with energy suppliers directly, reducing reliance on grids and utilities as intermediaries. We expect this dynamic to continue in 2026 and well into the next decade.

Hungry for Power

The most significant development of the past few years is the surge in electricity demand driven by digitalization and the rapid adoption of AI.

The data center buildout is the fastest growing source of electricity demand and will transform global power needs (see Figure 3). The forecasts struggle to keep up: BloombergNEF now projects

U.S. data center power demand to reach 106 GW by 2035, a 36% jump from its forecast just seven months before.⁷ Four hyperscalers—Amazon, Google, Microsoft and Meta—now account for around 90% of global clean energy contracting for data centers.⁸ At Brookfield, we have seen our contracting to these businesses double in less than two years and expect electricity demand forecasts to keep rising.

And while data centers are the fastest-growing source of demand, broad-based electrification and industrialization are the largest volume drivers, at over 70% of demand growth until 2050.⁹ The reindustrialization of the world’s largest economies, the electrification of major sectors—such as industrials and transportation—and the urbanization across emerging markets are creating sustained demand growth for generation capacity that will last for decades to come.

The need for power is particularly acute in the emerging markets. These economies are industrializing at an unprecedented pace, and energy security has become a national imperative. Despite the fact that emerging markets (outside China) are seeing some of the fastest growth in electricity demand, today they only receive an estimated 20% of total annual investment in the power sector.¹⁰ Here, the cost advantage of renewables provides a durable foundation for growth independent of subsidies or short-term policy shifts.

“Any-and-All” Solutions

Corporates and governments are now converging around the same objective: securing affordable, clean and reliable power at scale and quickly. Only a diverse, “any-and-all” energy solution—scaled with private investment—can power the global economy in the years ahead.

Renewables lead on cost and speed

Renewables remain the lowest-cost source of new electricity and the fastest to deploy and scale. Solar and wind projects anchor new-build pipelines, sup- ported by long-term, inflation-linked corporate and utility offtake agreements.

We believe renewables will continue to represent the largest share of new capacity additions in 2026 and beyond. The International Energy Agency (IEA) forecasts solar and wind to provide almost 20% of global electricity by 2026, a nearly fivefold increase from a decade ago.¹¹ Between now and 2030, it expects renewable power capacity to double.

Recent headlines suggest a potential slowdown for renewable investment, driven by changing policy priorities; in reality, the fundamental advantages of these technologies—and energy demand growth from corporates—are driving increasing investment, with no sign of abating. In fact, that dynamic is most significant in the U.S., where we are seeing the greatest ever demand for renewables despite recent policy changes.

Some projects and businesses have been affected by changing U.S. policy over the past year. But for those like Brookfield with a disciplined approach, access to scale capital and high-quality projects, the opportunity is growing. Many of the largest and most capable businesses have safe-harbored projects securing tax credits through to the end of the decade, maintaining underwritten returns. Even when these credits are phased out, renewable technologies will continue to stand on their own given their economic advantages: speed to market and energy security.

Storage enables round-the-clock clean power

Batteries are now central to meeting energy demand as they transform wind and solar into round-the- clock power solutions and provide increased reliability. Costs fell by roughly 95% since 2016,¹² enabling large-scale deployment alongside renewables and traditional thermal technologies.

In addition to enabling the supply of 24/7 clean energy, batteries provide critical grid stabilizing services when growing loads and a shifting energy mix have resulted in congestion and intermittency. We expect investment in grid-connected storage to continue to increase in 2026 as a solution to these challenges and, in particular, note that colocated solar-plus-storage developments are emerging as a preferred model for new capacity. In the U.S., over half of the utility-scale storage coming online by 2026 is paired with solar.¹³

By 2030, global demand for batteries is now expected to be double what anyone thought possible just a few years ago, reflecting the improving economics and evolving needs of the grid (see Figure 4).

Nuclear returns to the mainstream

Nuclear energy is a critical source of scale, carbon-free baseload power, and governments around the world are increasingly looking to it as they form their energy strategies and policies. The U.S. government has made it a strategic priority to start construction on 10 new reactors by 2030¹⁴ and recently announced it would invest a minimum of $80 billion to kickstart this program with Westinghouse—a nuclear technology leader owned by Brookfield since 2017. The U.K., Poland, Czechia and Bulgaria, to name a few, are building new reactors, and around the world countries are extending the life of their currently operating fleet and restarting non-operational reactors. This renewed focus is, in turn, driving supportive regulation and improved capital access, which is expected to continue reviving investment interest.

Our view is that over the coming decades, hundreds of gigawatts of new nuclear capacity will need to be deployed. Through Westinghouse, we are witnessing a step change in the nuclear reactor buildout that exceeds anything seen this century, creating investment opportunities not only in the construction of new generating plants, but also in securing the decades-long fuel and servicing requirements for those reactors.

Gas + carbon capture as critical balancers

Natural gas continues to play a critical role in meeting energy demand and stabilizing grids. While we see vast demands for power driving a resurgence of nuclear, we are observing similar trends in gas, especially in markets that have an abundance of this natural resource domestically.

What’s more, carbon capture and storage (CCS) is increasingly economic and can be paired with gas to provide cleaner, more reliable and flexible energy solutions. Projects such as Entropy’s Glacier CCS facility, the world’s first decarbonized gas plant through carbon capture,¹⁵ further demonstrate commercial viability of CCS and help solidify the position of natural gas as a transitional yet indispensable power source.

Other decarbonization technologies expand the toolkit

Beyond power generation, a new wave of decarbonization technologies is emerging for sectors that are difficult to electrify. eFuels—including sustainable aviation fuel and other biofuels produced from captured carbon dioxide and green hydrogen—offer pathways to cut emissions from aviation, shipping and long-haul transport. Brookfield’s investment in an eFuels project with Infinium—supplying low-car- bon fuel to airlines and logistics customers— demonstrates how these solutions are moving to commercial scale. Green hydrogen and advanced recycling technologies are also helping heavy industry reduce emissions where high temperature heat and complex feedstocks are involved. Together, these technologies complement renewables and storage and expand the toolkit for decarbonizing hard-to-abate sectors.

Managing grid limitations

Utilities and grid operators are planning significant levels of transmission investment. In 2024 alone, a record $390 billion was invested to ensure that grids could manage additional power.¹⁶ However, we expect grid connection to remain one of the biggest obstacles to meeting demand. This should contribute to continued growth in batteries, which reduce grid congestion, and distributed generation, which can add capacity without relying on the grid.

Looking Ahead

The future needs an “any-and-all” approach to energy investment. The forecast demand is too high, and the existing technologies too established, for there to be a zero-sum or winner-takes-all out- come. Investors who work with governments and corporates to deliver diversified energy solutions are poised to best capitalize on this dynamic.

Disciplined capital allocation is increasingly import- ant, as generating returns in such an environment requires adherence to the same rules that define success in other forms of infrastructure investing— focusing on securing long-term contracts backed by creditworthy counterparties and delivering technologies that stand to win on the fundamentals. Similar to previous growth periods, as policy incentives normalize and competition intensifies, those attributes will separate durable value creation from cyclical growth.

In this environment, we see an opportunity for disciplined and experienced operators to capture significant value by enabling the largest energy buildout in history.

This dynamic, along with additional potential rate cuts in the U.S. and Europe, points to higher deal activity in 2026. Portfolios can age for only so long before they must transact.

Reset

Over the past decade, the private equity industry grew rapidly as managers used low-cost debt to buy assets and then benefited from market growth and expanding multiples to drive returns with limited margin improvements. This was an unsustainable trend. Many managers that purchased assets at elevated valuations several years ago are stuck holding businesses that now are worth less than what they paid, creating a supply of quality assets available at potential discounts.

The market is recalibrating after a decade of general partner proliferation. The number of firms has tripled relative to capital raised, creating a 3:1 imbalance between fundraising targets and available investor capital.

In 2026, we see the industry beginning to reset, with the most scaled and operationally disciplined players thriving in an era of consolidation. We expect the next 24 to 36 months to mark the steepest phase of this consolidation, particularly among mid-market general partners with differentiated operating capabilities. As the industry shrinks, these capabilities will become the currency of survival, and the managers positioned to benefit most will share four traits:

• Scale to execute complex transactions
• Sector expertise for an informational edge
• Operating capabilities to drive post- acquisition value
• A focused, controllable thesis anchored in tangible performance levers

The new era is forcing managers to work harder and focus on margin expansion—not multiple expansion—to earn their returns. Brookfield Private Equity has historically employed this approach, with operational improvements accounting for over 50% of total value created.¹⁹

The math is unforgiving for managers continuing to rely on cheap leverage. For example, a trans- action with a 5% interest rate and a 70% loan-to- value ratio would require 4%–5% earnings growth to generate a 20% internal rate of return. But with today’s higher rates, a transaction with a 7.5% rate and 55% LTV ratio would require nearly twice the earnings growth—8.4%—to achieve the same 20% return.

In the new era of private equity investing, marginal deals that require financial engineering will underperform. Operational excellence is the new driver of returns.

Resurgence - Industrial transformation

Sometimes compelling investment opportunities can hide in plain sight. Industrial companies are often overlooked and undervalued, not because their products are obsolete but because many have underinvested in modernization, capacity and operational capabilities. This leaves them less competitive despite strong underlying assets and market positions.

Private capital is increasingly required to transform these companies. Public market volatility is driving industrial management teams to pursue privatizing assets, recognizing that meaningful change requires a long-term outlook rather than quarter-over-quarter earnings scrutiny. Many large-scale conglomerates are rationalizing their noncore businesses, creating attractive buying opportunities for managers able to tackle complexity and drive change.

Beyond internal business strategies and pressure from outside investors, two unfolding global megatrends will drive this transformation in 2026—and likely for decades more.

The backbone of the global economy requires supply-chain resilience. Yet events in recent years— Covid, geopolitical tensions and tariffs—have prompted industrial companies to seriously consider reshoring their essential manufacturing processes to avoid massive cost increases and disruption. This trend toward deglobalization offers private equity firms opportunities to provide the deep expertise and significant capital required to secure industrial company supply chains (see Figure 6).

AI-led digitalization is the other megatrend reshaping businesses across the globe. For industrials, implementation is imperative. Unlike many pure technology companies, industrials often operate with legacy infrastructure, analog workflows and decentralized decision-making that add complexity to modernization efforts.

In our view, AI models will increasingly play an out- sized role in transforming industrials, cutting costs, addressing labor shortages, innovating product lines and optimizing supply chains. This is not a plug-and-play exercise. It demands operational expertise, deep sector knowledge and the ability to redefine how work gets done.

Beyond the industrials sector, AI is creating opportunities in essential business services. In financial services, for example, AI is enhancing efficiency by automating underwriting, improving loss forecasting, and enhancing fraud detection and prevention. In financial infrastructure, banking platforms must transform their analog systems into new-age digital operations to remain competitive.

Productivity potential

AI is poised to become the most impactful general-purpose technology in history, driven by the expected buildout of the necessary capital-intensive physical infrastructure to support its adoption and the efficiencies that result.

We anticipate that AI-led automation could lead to massive growth in global gross domestic product, potentially reaching over $10 trillion in economic productivity gains in the next decade.²⁰ The companies that benefit from these gains won’t just be the technology platforms building the models but, importantly, the industrial and essential business services companies investing in automation and AI tools to accelerate their digital transformation.

Investing for Transformation

As capital markets continue to thaw, private equity opportunities are heating up and creating an optimistic outlook for 2026.

We expect to see significant activity in industrials, particularly in sub sectors that are poised for AI-led digitalization such as specialized manufacturing. The critical need for supply-chain security and the unstoppable rise of AI will drive industrial trans- formation, enhancing productivity and investor returns. We also see additional interest-rate cuts continuing to lower borrowing costs and accelerate deal activity, but likely among fewer managers as the industry consolidates.

For private equity, the age of financial engineering is over, and the defining go-forward narrative is operational excellence. Managers that are willing to roll up their sleeves, reimagine workflows and implement breakthrough technologies will be well positioned to capitalize on the opportunities ahead.

Housing

Housing represents one of the most compelling long-term investment themes we see around the world, with powerful demographic trends driving our investment focus.

In the U.S., demand is being shaped by millennials and baby boomers, who together account for a substantial share of the population (see Figure 8). For millennials, affordability remains a core challenge. Home prices have risen 87% since 2016, and elevated interest rates further limit ownership, fueling demand for rentals and affordable alternatives such as manufactured housing. Manufactured homes, which cost roughly 30% less to own than tradition- al single-family houses, have seen virtually no new supply in the past decade and continue to demonstrate strong NOI resilience and sticky occupancy.²⁴

At the other end of the spectrum, an aging population is driving a nationwide shortage in senior housing. More than 15 million baby boomers are expected to enter the 70–85 age group in the next five years alone. And supply is lagging after years of underdevelopment. By 2030, new inventory is expected to meet less than one-third of projected demand. Communities offering a full continuum of care, including independent living, assisted living and memory care, are particularly well positioned, though they require greater operational sophistication to support residents as their needs evolve. Managers with expertise and experience in complex operating models and improving resident experience will be best positioned to capture the wave of double-digit NOI growth predicted over the next several years.

In Europe, rental demand is rising as renting becomes a permanent lifestyle choice for many households. Since 2010, the growth rate of rent- al housing has outpaced home ownership by 20 percentage points, and the region’s housing stock is among the oldest and least institutionalized in the world.²⁵ In the U.K., more than 80% of homes are more than 50 years old, and only 2% of rentals are institutionally managed—compared with 41% in the U.S.²⁶

Meanwhile, housing supply is at record lows. Land scarcity, labor shortages, longer planning cycles and weaker project economics have driven a 70% drop in new housing starts in the U.K. since 2022.²⁷

These conditions create compelling opportunities to acquire, create and expand platforms, and institutionalize fragmented market segments across the housing spectrum.

Moving to the Asia-Pacific region, institutional rental housing is in the early stages across many countries. India stands out, with significant population growth and the projected migration of 350 million people to cities by 2050, one of the largest urban shifts in history.²⁸ As India’s working and middle class continues to grow and urbanize, there is a deep opportunity to provide institutional-quality rental housing in a country where roughly 70% of rental housing remains informally managed.²⁹

Logistics and Data Centers

The same forces reshaping the global economy— technology, trade and power—are turning logistics and data centers into some of the most compelling real estate opportunities today. Digital infrastructure demand is redefining land valuations.

Companies are rethinking where they manufacture, store and distribute goods in light of geopolitical volatility. Regionalization defines the landscape. We are seeing distinct trade clusters emerging across the Americas, Europe and Asia Pacific, with each developing its own ecosystem. Intra-Asia-Pacific trade has surged since 2019—with container volumes rising 13% in 2024 alone—as production and consumption grow more interconnected.³⁰ In some markets in the region, modernization is skipping legacy models altogether—adopting AI-driven fulfillment and multilevel distribution at scale.

In data centers, it’s no longer just about location— it’s about the ability to tap into affordable, sustainable power. Reliable energy access now determines where and how quickly new capacity can be built. We are also seeing industrial land intended for warehouses becoming data centers. There is increasing demand for converting high-quality industrial and business parks around the world into sites for AI factories, where development margins and land value upside are significantly greater. In a recent transaction, we sold a logistics parcel to a buyer seeking power access and land for their data center campus expansion, leading to a sale at pricing 1.5 times the logistics land valuation.

Experience, operating capabilities and relationships tie everything together. Partnerships with utilities secure grid access, and cooperation with governments helps unlock incentives and approvals. And long-term leases with top-quality clients create stable cash flows built on reliability, speed and trust. Logistics operators who deliver consistently for clients can become these companies’ partner of choice across markets.

Hospitality

Around the world, certain hospitality markets have evolved beyond post-pandemic recovery into a stage of sustained growth. Record tourism volume, coupled with limited new supply, is driving up RevPARs and supporting favorable dynamics.

Asia-Pacific hospitality represents a highlight within the sector. Japan, for example, has seen a fourfold increase in tourist arrivals over the past 15 years. Travel spending in the region as a whole is projected to grow at an 8.9% CAGR from 2025 to 2030, and yet Asia Pacific remains significantly undersupplied—hotel density relative to population remains far below that of the U.S.³¹

In Europe, luxury travel is accelerating, reinforcing pricing power for best-in-class assets. While the European hotel market is larger than the U.S. by room count, it remains highly fragmented, with low brand penetration and roughly 80% of assets in private hands.³² That creates opportunities for consolidation-led value creation. Moreover, liquidity constraints and rising construction costs have led many owners to defer refurbishments, resulting in a significant capex backlog of undercapitalized assets and creating compelling value-add entry points for investors.

In this environment, high-quality assets in markets with high barriers to entry and supply constraints will only become more valuable.

Open for Business

As we enter 2026, credit is flowing, liquidity is returning and investors are recalibrating strategies for a commercial real estate market that is increasingly open for business.

As a result, disciplined, selective investors are presented with opportunities to deploy capital into some of the best assets, businesses and management teams, in some of the most exciting geographies and sectors—opportunities that simply are not often available.

These assets benefit from experienced owner-operators who drive value creation through thoughtful, hands-on business plans. Deals are made at entry and measured at exit, but much of the value of a successful investment is earned during the hold period.

In other words, operations matter—especially as we enter the next phase of the real estate cycle.

Real Estate Credit: Liquidity Unlocked

Current conditions create a favorable setup for higher-yield deployment. For example, real estate credit markets are experiencing recent record liquidity and rising transaction volumes, with 2025 CMBS issuance on pace to exceed $120 billion (see Figure 9), the highest since 2007. CMBS serves as a key barometer of private real estate credit, and today’s issuance momentum reflects renewed market depth. And, following a meaningful value reset, real estate equity valuations remain about 17% below prior peaks,³³ creating a tailwind for attractive valuations with a deeply insulated entry point into the capital stack for credit investors. In addition, roughly $1.9 trillion of loans will mature over the next two years, while 2025-originated loans are priced about 150 basis points higher than those maturing in that window.³⁴

Amid this backdrop, alternative lenders and insurers are gaining share in the $8+ trillion commercial mortgage market. Meanwhile, bank loan originations are rising in comparison with a pullback witnessed in recent years, but banks’ focus has shifted to becoming larger providers of back leverage and working with private lenders through co-origination platforms, strategies that operate alongside and enhance the offerings of alternative lenders. With banks holding nearly twice the market share they do in the U.S., Europe offers compelling opportunities for alternative lenders as the market evolves, especially in the senior part of the capital stack.

Housing remains a high-conviction sector, sup- ported by deep structural undersupply with about four million homes needed in the U.S., and housing completions down 22% year-over-year.³⁵ Opportunities such as office-to-residential conversions and homebuilder financing directly address sustained demand, offering investors differentiated, high- yield exposure in select markets.

We also see selective tactical upside in the office sector, with values 40% below 2022 post-Covid peaks, prime assets commanding 15% premiums, and limited new supply, creating favorable dynamics for lenders seeking exposure to a sector with quickly improving fundamentals and attractive credit metrics. While real estate is a highly diverse sector that requires building-by-building and neighbor- hood-level diligence, today’s backdrop presents one of the most attractive environments in over a decade for disciplined real estate credit deployment.

Infrastructure Debt: Outsized Opportunities

The outlook for infrastructure remains strong. Lower borrowing costs are improving refinancing conditions and transaction activity. Moderate inflation also remains a tailwind for the sector. Because many infrastructure assets can pass through inflation in their pricing and maintain steady demand, they tend to preserve their real (inflation-adjusted) returns better than many other types of investments.

Infrastructure continues to demonstrate the defensive qualities of essential businesses with high barriers to entry and predictable cash flows with embedded inflation protections. These qualities naturally translate into low defaults and high recovery rates (see Figure 10). By focusing on proven operating assets with long-term contracted cash flows and avoiding areas such as untested technologies or large and complex construction risk, investors can preserve downside protection. Infrastructure private credit also provides effective portfolio diversification into essential non-cyclical sectors and is generally not well represented by public market high-yield issuances. In the current environment, infrastructure debt also offers compelling cash yields, providing resilient income and attractive risk-adjusted returns—an enduring advantage as markets navigate a shifting macro environment.

Looking ahead, a defining growth driver will be the financing of digital and energy infrastructure, particularly AI-related data centers that are supported by strong counterparties and long-term contracts, and which require massive investments in power, cooling and compute capacity. With global AI infra- structure needs estimated to exceed $7 trillion over the next decade,³⁶ investors can capture durable, inflation-resilient yields through infrastructure debt.

Corporate Credit: Quality Over Quantity

Issuance in both leveraged finance and investment-grade markets has been driven by refinancings and repricings. Credit spreads across public and private markets remain near historical tights, relative to the last 15+ years, but the ~150 basis-point premium³⁷ on direct lending private debt remains accessible— underscoring ongoing investor demand for illiquidity compensation even as competition intensifies.

Default rates across direct lending and high yield were in line with historical averages in 2024 and 2025—well below global financial crisis and Covid peak default rates. In contrast, broadly syndicated loan defaults became elevated in that same period. While we still view direct lending as attractive on a relative basis, we are exercising significant caution in this environment with disciplined credit selection.

Our outlook for corporate credit is guided by a sharp- er distinction between sub-investment-grade direct lending and private investment-grade credit, with the latter offering particularly attractive risk-adjusted returns through exposure to credit-worthy high- grade borrowers seeking private market flexibility. We currently expect that capital to increasingly flow toward these higher credit-quality strategies as investors look to generate incremental spread while maintaining—or even improving—their risk profile.

ABF: Positioning for What’s Next

The asset-based finance landscape is entering a period of renewed market focus that could unlock compelling opportunities. Within the consumer segment, tighter underwriting standards are expected as lenders respond to evolving credit conditions as well as investor and regulatory scrutiny. The resulting portfolios will likely exhibit stronger credit fundamentals, lower delinquency rates and healthier excess spread profiles. This environment favors platforms that emphasize disciplined, data-driven underwriting, deep fundamental analysis, rigorous servicing oversight and selective capital deployment into higher-quality assets.

At the same time, prospective easing in interest rates could catalyze renewed activity in mortgage markets. Lower borrowing costs will likely drive higher lending volumes and greater transaction velocity across housing markets. Strategic mortgage platforms with integrated verticals combining origination, securitization and asset management stand to benefit from operating leverage and diversified revenue streams. These end-to-end models can capture value across the mortgage lifecycle, from loan production to secondary market activities.

We remain focused on identifying attractive credit opportunities under all market conditions but are also cognizant that dislocations often create value-driven entry points for sophisticated asset man- agers. Firms with deep expertise in underwriting and asset selection are well equipped to identify sec- tor opportunities and pockets of asymmetric risk and reward.

Investing Discipline

In an environment of tighter credit spreads and pockets of macro uncertainty, discipline can serve as both a defensive posture and an advantage. Managers who stay the course—focusing on fundamental value, prudent underwriting and long- term alignment—can position themselves to deliver attractive risk-adjusted total returns compared with their peers.

Whether through real estate credit benefiting from an active market, infrastructure credit supported by long-term contracts, corporate lending to defensive businesses with strong fundamentals, or ABF that reaches into areas of the everyday economy, private credit is poised to grow as an integral part of a diversified portfolio. The key will be to remain selective and flexible in the year ahead.