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Alternatives

Private Credit Yields Peak as Secondary Discounts Create PE Opportunity

Issue 1Week ending February 1, 202612 sources

WTI crude60.46-2.1%
Gold2,685.40+1.3%
REIT index1,515.16+0.8%
VIX16.35-0.8pts
HFRI composite1.20+0.3%
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Week Ending February 1, 2026

Private Credit Yields Peak as Secondary Discounts Create PE Opportunity

§ 01

Key takeaways

Strategy

Private credit yields peaked at 11.8% while PE secondary discounts of 15-20% create vintage diversification opportunities for patient capital.

Liquidity

Liquid alts flows normalized after Q4 redemptions, but illiquid vehicle commitments accelerated as allocators lock in attractive entry points.

Hedging

VIX normalization and gold strength signal balanced risk posture, with alternatives correlation to equities remaining below long-term averages at 0.65.

§ 02

Executive summary

Private credit dominates alternatives allocator conversations with all-in yields reaching 11.8% on new direct lending deals. Secondary market PE discounts of 15-20% attract opportunistic capital from Maple 8 pensions, while REITs benefit from dovish Fed pivot expectations. Canadian allocators favor infrastructure and private credit over traditional PE, with OTPP and CPP Investments increasing secondary commitments. Liquid alternatives see stabilized flows after Q4 volatility.

§ 03

Market data

weekly snapshot

QMR MARKET BRIEF

Market posture

Week ending

Overall postureConstructive

Strategy Expanding · Liquidity Neutral · Hedging Neutral

Snapshot compiled Jan 28, 2026 · source dates vary

StrategyExpanding
LiquidityNeutral
HedgingNeutral

Inputs used

WTI crude$60.46-2.1% 1W
Gold$2,685.4+1.3% 1W
REIT index1,515.16+0.8% 1W
VIX16.35-0.8 pts 1W
HFRI composite1.2+0.3% 1W
§ 04

Strategy

20 points

Private equity

  • Secondary opportunities PE secondaries trading at 15-20% discount to NAV, highest since 2020; Hamilton Lane sees 'compelling vintage diversification entry point'
  • Fundraising slowdown Global PE fundraising down 23% YoY to $847B; Cambridge Associates notes 'LP selectivity driving concentration to top quartile managers'
  • Canadian activity OTPP commits $2.8B to secondary funds in Q4 2025; CPP Investments increases secondary allocation from 8% to 12% of PE portfolio
  • Exit environment IPO window remains constrained with only 12 PE-backed IPOs in Q4; continuation funds up 34% as exit alternative (Preqin)
  • Positioning Favor secondaries and co-investment over primary fundraising; target 2017-2019 vintages for harvesting (Cambridge Associates)

Private credit

  • Yields peaked Direct lending all-in yields reach 11.8% (SOFR+650bp), up from 10.2% in Q3; Ares sees 'credit cycle inflection point'
  • Default rates stabilizing Private credit net charge-offs at 2.1% vs 1.8% historical; Apollo notes 'covenant protections limiting severity'
  • Deal terms First-lien spreads averaging 650bp over SOFR vs 520bp public leveraged loans; borrower acceptance of higher cost (KKR Credit)
  • Canadian context CDPQ increases private credit allocation to 12% of total portfolio; Brookfield Private Credit Fund reaches $15B AUM
  • Positioning Lock in current yields before Fed cuts compress spreads; favor first-lien direct lending over broadly syndicated (Oaktree)

Hedge funds

  • L/S equity alpha Equity hedge funds up 1.2% MTD vs S&P 500 flat; stock picking environment improving with dispersion at 18-month high (HFR)
  • Macro strategies Systematic CTA funds up 3.1% YTD on currency volatility; discretionary macro struggles with whipsaw rates (HFRI)
  • Multi-strategy flows Citadel, Millennium see record inflows of $8.2B combined; institutional preference for diversified platform model
  • Fee compression Management fees average 1.4% vs 1.7% historical; performance fees remain 19% but with higher hurdles (Preqin)
  • Canadian allocator shift HOOPP reduces hedge fund allocation from 8% to 6%; OMERS increases to 7% with macro strategy focus

Real assets

  • REIT recovery US REITs up 0.8% weekly on dovish Fed signals; cap rates stabilizing at 6.2% vs 10-year Treasury 4.4% spread (Greenstreet)
  • Private real estate NCREIF Property Index down 8.2% YoY but pace of decline slowing; office continues correction at -18.7% (NCREIF Q4 data)
  • Infrastructure dealflow Energy transition infrastructure sees $47B global commitments in Q4; Brookfield Infrastructure Partners up 12% YTD
  • Commodities diverge Gold rallies on central bank buying while WTI drops on demand concerns; copper signals industrial slowdown at $4.12/lb
  • Canadian exposure Brookfield Infrastructure closes $25B Fund VI; Canadian natural resource infrastructure benefits from energy security theme
§ 05

Liquidity

10 points

Access

  • Liquid alt stabilization Interval fund redemptions normalize at 3.2% vs 8.1% peak in December; investors retain illiquid exposure preference
  • Semi-liquid growth Tender offer funds raise $12B in January vs $8B December; Apollo Strategic Fund and KKR North America Fund lead flows
  • Evergreen structures Blackstone REIT, Starwood Capital launch new evergreen vehicles; fee-efficient access to institutional strategies
  • Canadian landscape NI 81-102 alternative funds see C$2.1B net inflows; liquid private credit funds dominate with 67% market share
  • Access premium Illiquid vehicles trade 180bp yield premium over liquid equivalents; institutions willing to pay for liquidity optionality

Secondaries

  • Pricing opportunity PE secondaries average 18% discount vs 12% Q3 average; vintage 2020-2021 funds see deepest discounts (Hamilton Lane)
  • Volume acceleration Q4 secondary volume reaches $47B, up 31% QoQ; LP-led transactions comprise 68% vs 52% GP-led (Jefferies)
  • Real estate focus Private real estate secondaries trade at 22% discount; office exposure drives pricing penalty (Greenhill)
  • Canadian activity CPP Investments commits additional $1.8B to secondary opportunities; targets North American PE and infrastructure
  • Market signal Wide discounts indicate capital allocation opportunity for patient buyers; expected normalization by H2 2026 (Coller Capital)
§ 06

Hedging

10 points

Volatility

  • VIX normalization VIX at 16.35 indicates normal volatility regime; options market pricing 18% equity volatility through year-end (CBOE)
  • Alternatives correlation 60-day correlation of alternatives to S&P 500 at 0.65 vs 0.78 long-term average; diversification benefit intact
  • Gold positioning Central bank buying continues at 800 tonnes annually; retail flows turn positive on banking sector concerns (World Gold Council)
  • Rate volatility MOVE index at 115 vs 95 average indicates bond volatility elevated; impacts real estate and infrastructure valuations
  • Institutional hedging 73% of pension plans maintain 5-15% hedge fund allocation for tail risk protection (Callan 2026 Study)

Tactical

  • Capital call pacing Private fund capital calls average 28% of commitments annually vs 25% historical; maintain 15% cash buffer (Cambridge)
  • Vintage diversification 2024-2025 vintages offer attractive entry points; balance with 2017-2019 harvest vintages for liquidity
  • Rebalancing signal Public equity rally pushes alternative allocation 200bp below target; tactical rebalancing opportunity emerges
  • Stress scenarios Private credit most vulnerable to credit cycle; real estate sensitive to rate shock; PE vulnerable to exit market closure
  • Risk budget Allocate 60% to core strategies (credit, infrastructure) and 40% to opportunistic (secondaries, distressed) for balance
§ 07

Institutional views

12 institutions

Institutional Perspectives

CPP Investments

allocator
bullish
Preferred: Secondaries, Infrastructure, Private credit
Avoid: Mega-cap buyout
Key Call: Increasing secondary allocation from 8% to 12% of PE portfolio to exploit pricing dislocations

Ontario Teachers'

allocator
neutral
Preferred: Natural resources, Infrastructure
Avoid: Traditional hedge funds
Key Call: Targeting $15B in natural resource investments over next 3 years amid energy transition

Brookfield Asset Management

manager
bullish
Preferred: Infrastructure, Real estate, Renewable power
Avoid: Office real estate
Key Call: Infrastructure Fund VI oversubscribed at $25B on energy transition and AI data center demand

Apollo Global Management

manager
bullish
Preferred: Private credit, Hybrid capital
Avoid: Liquid credit
Key Call: All-in yields of 11.8% on new direct lending deals represent 'generational opportunity in private credit'

Cambridge Associates

consultant
neutral
Preferred: Secondaries, Co-investment
Avoid: Primary PE fundraising
Key Call: Secondary market presents best PE entry point since 2020 with 15-20% NAV discounts

CDPQ

allocator
bullish
Preferred: Infrastructure, Private credit
Avoid: Core real estate
Key Call: Raising private credit allocation to 12% of portfolio targeting first-lien direct lending

Blackstone

manager
neutral
Preferred: Private credit, Infrastructure
Avoid: Traditional PE
Key Call: Shift from traditional buyouts to credit and infrastructure reflects 'permanent capital advantage'

Hamilton Lane

consultant
bullish
Preferred: PE secondaries, Co-investment
Avoid: Late-stage venture
Key Call: Secondary transaction volume at $47B quarterly suggests 'institutional quality opportunity set'

KKR

manager
bullish
Preferred: Direct lending, North America Fund
Avoid: European PE
Key Call: North America Fund IV targeting $25B on middle market buyout opportunity in 2026-2027 vintage

Preqin

consultant
neutral
Preferred: Infrastructure, Private credit
Avoid: Venture capital
Key Call: PE fundraising decline of 23% signals 'flight to quality' favoring established managers with proven track records

BCI

allocator
neutral
Preferred: Infrastructure, Real estate debt
Avoid: Core office
Key Call: Shifting real estate allocation from core office to industrial and data center assets

Ares Management

manager
bullish
Preferred: Direct lending, Special situations
Avoid: Broadly syndicated loans
Key Call: Private credit Fund VIII closing at $42B demonstrates 'institutional demand for illiquidity premium'
§ 08

Portfolio implications

Portfolio Implications

Conservative

  • Strategy focus: 60% private credit, 25% infrastructure, 15% core real estate for yield and capital preservation
  • Vehicle preference: Interval funds and semi-liquid vehicles for private credit access without lock-up risk
  • Hedging: 12% cash buffer for capital calls; 5% gold allocation for tail risk protection
  • Canadian benchmark: Match Maple 8 average 28% alternatives allocation with defensive tilt toward credit and real assets

Balanced

  • Strategy mix: 35% private credit, 25% PE (secondary focus), 25% real assets, 15% hedge funds for diversified exposure
  • Vehicle mix: 60% illiquid drawdown funds, 40% liquid/semi-liquid for tactical flexibility and capital call management
  • Hedging: Target 0.65 correlation to public equities through commodity exposure and market-neutral hedge fund allocation
  • Canadian allocation: Utilize Canadian infrastructure and private credit funds for currency hedging and domestic economic exposure

Growth

  • Strategy tilt: 40% PE (secondary and co-investment focus), 35% private credit, 25% infrastructure for capital appreciation
  • Vehicle preference: Illiquid drawdown funds and evergreen structures for maximum illiquidity premium capture
  • Hedging: Tactical volatility overlay through systematic strategies; reduced cash drag at 8% buffer
  • Canadian diversification: Global infrastructure and PE exposure through Brookfield, OTPP international platforms for geographic balance
§ 09

Key dates

5 events

Key Dates Ahead

DateEventRelevance
February 3Federal Reserve Policy DecisionRate guidance impacts real estate cap rates and private credit spreads
February 5January Employment ReportLabor market strength affects PE exit timing and credit default expectations
February 6Brookfield Infrastructure EarningsLargest Canadian infrastructure manager guides on deal pipeline and deployment pace
February 7NCREIF Q4 Property Index ReleasePrivate real estate benchmark reveals cap rate and valuation trends
February 10Preqin Private Capital UpdateMonthly fundraising and deployment data for PE, credit, and real assets strategies
§ 10

Sources

12 sources

Sources & References

  • CPP Investments
    Private Markets Outlook 2026: Secondary Opportunities
    January 27, 2026
  • Apollo Global Management
    Private Credit: Generational Entry Point
    January 26, 2026
  • Cambridge Associates
    Private Equity Secondary Market Analysis Q4 2025
    January 25, 2026
  • Brookfield Asset Management
    Infrastructure Fund VI: Energy Transition and Digital Infrastructure
    January 28, 2026
  • Hamilton Lane
    Secondary Market Quarterly Review
    January 24, 2026
  • CDPQ
    Private Credit Allocation Increase: Strategic Rationale
    January 26, 2026
  • Preqin
    Global Private Capital Report January 2026
    January 23, 2026
  • Ares Management
    Private Credit Market Update Q4 2025
    January 25, 2026
  • Ontario Teachers'
    Natural Resources Investment Strategy 2026-2028
    January 27, 2026
  • Oaktree Capital
    Credit Cycle Inflection: Direct Lending Opportunity
    January 24, 2026
  • NCREIF
    Property Index Q4 2025 Results
    January 28, 2026
  • HFR
    Hedge Fund Performance Review January 2026
    January 25, 2026