Investors continue retreat from private markets

Investors continue retreat from private markets in 2026, underperformance persists

Public pension funds have continued to scale back their exposure to private equity in 2026, a trend responding to the asset class’s anemic returns and weakening economic outlook overall.

The $84 billion New Jersey State Investment Council opted in April to reduce allocation targets to private equity and real estate, according to Pensions and Investments.

In May, the $89 billion Alaska Permanent Fund adjusted targets down by 1% each in private equity, real estate and private infrastructure/credit – a 3% reduction to private asset classes that the CIO warned are “flashing red.” Alaska’s adjustments will be reallocated to public markets and hedge funds for improved liquidity.

The Financial Times said in March that private markets are entering a “great disappointment era” where “returns will fall far short of the expectations of investors.”

Limited partners have noticed; fundraising for new private equity funds has slumped in the past few  years and the trend continued through the first quarter of this year, which the Wall Street Journal reported as the slowest pace in a decade. The lack of exits from the industry’s backlog of 33,000 unsold companies is a “crisis.”

Soaring stock markets have easily beat private equity returns in recent years, but private equity’s underperformance dates back a decade by some measures. State Street found that “private capital underperformed public equities across multiple investment horizons.” Compared to large-cap stocks, private equity underperformed for all time periods going back 10 years in State Street’s analysis.

Hamilton Lane similarly found that “private equity has underperformed against almost all the public benchmarks.” Hamilton Lane specifically looked at how private equity compared to the S&P 500 as well as a metric that excluded the Magnificent 7 and found that private equity still underperformed over 1-, 3- and 5-year periods.

Even as private equity struggles, the Department of Labor has proposed weakening retail investor protections and to give private asset managers access to retirement savers’ 401(k)s. The Private Equity Stakeholder Project, policymakers, state attorneys general are raising alarms about the risks, fees and illiquidity that make private funds ill suited for individual retirement savers.

The move by Alaska Permanent Fund to reduce private markets targets changes the investment policy for the upcoming fiscal year, starting in July through June 2027, with staff potentially returning to the board next year to evaluate if further adjustments are needed.

The Alaska Permanent Fund’s investment advisor said at the May 27 meeting, “There appears to be more opportunity for dislocation in private markets and private equity right now relative to public equity,” due to opacity and competition.^[1]

Another member of the investment advisory team noted that in the capital markets projections prepared by consultant Callan, “the premium that private equity offers over public equities is declining or the same due to maturity of asset class.”^[2]

“Annualized 5-year returns for Alaska Permanent Fund’s private equity portfolio have been trending down since the peak in 2021,” staff reported, adding that projected returns “trend even lower towards around 6%.”^[3]

The Alaska Permanent Fund has around 37% of its portfolio in private markets,^[4] higher than comparable public pension funds which on average allocate around 31% to private markets.

The moves by New Jersey and Alaska mirror private equity reductions by other state pension funds. In 2025, one in three public pension funds cut back private equity targets, according to PEI’s 2025 Investor Report. Among the state funds that reduced private equity targets last year were Washington, Maine, Nevada, Ohio, and Alaska Retirement.

^[1] Meeting video from May 27, 2026 at 0:41:20 https://apfc.org/governance/board-meetings/

^[2] Meeting video from May 27, 2026 at 1:03:34 https://apfc.org/governance/board-meetings/

^[3] AFPC May 26-27, 2026 Quarterly Board Meeting Packet, page 369

^[4] AFPC May 26-27, 2026 Quarterly Board Meeting Packet, page 359