Northern Trust Asset Management has released its 2026 edition of the Capital Market Assumptions (CMA), forecasting robust returns for private markets over the coming decade. Central to this outlook is the accelerating influence of artificial intelligence (AI), which the firm identifies as a primary driver of innovation and growth within private equity and credit sectors.
The CMA report projects an annualized return of approximately 10.2% for private equity and venture capital investments, surpassing expected returns in public markets. This superior performance is attributed to AI's capacity to catalyze innovation and stimulate deal activity in the private sphere. Private credit is also anticipated to offer strong results, with a forecasted 8.2% annualized return, benefitting from favorable shifts in interest rates and technology trends that support AI development and private enterprise expansion.
Despite expectations of lower prevailing interest rates exerting downward pressure on yields, the report indicates that activity in private credit deployment should increase alongside a predicted resurgence in mergers and acquisitions. This interplay suggests a dynamic private credit landscape, underpinned by the financing needs of companies investing in AI infrastructure and innovation.
Global Co-Chief Investment Officer Anwiti Bahuguna emphasizes AI's transformative potential, stating that it is demonstrating significant promise in enhancing productivity and reshaping labor markets. This technological evolution could partially mitigate challenges posed by an aging workforce. Bahuguna further notes private markets stand to benefit as AI stimulates deal flow in private equity and as private credit undergirds the development of AI infrastructure.
Macro Trends Impacting Markets and the Global Economy
The CMA singles out three overarching long-term trends expected to influence market dynamics and economic conditions across the next decade:
- Innovation versus Demographic Changes: The adoption of AI automation and robotics is set to transform labor markets significantly. While these technologies may alleviate pressures from aging populations by boosting efficiency, there is a concomitant risk of workforce reductions due to automation-induced layoffs.
- Geopolitical Shift Toward Self-Reliance: Rising geopolitical tensions are fostering a move toward greater economic self-sufficiency. This transition may lead to slower economic growth and elevated inflation in some regions but also encourages localized innovation and new geopolitical partnerships. For instance, elevated U.S. tariffs are prompting renewed efforts to strengthen regional trade agreements and reduce internal trade barriers.
- Fiscal Constraints and Rising Debt Burdens: The report highlights concerns regarding increasing government debt levels and budget deficits, exacerbated by elevated public spending. These fiscal pressures potentially impede global growth, with some countries facing difficulties harnessing innovation due to constrained policy options. While AI could offer a counterbalance, particularly for the U.S., less flexible economies may struggle under these conditions.
Christian Roth, Global Co-Chief Investment Officer at Northern Trust Asset Management, underscores the importance of risk-aware portfolio growth strategies. He advocates for investment approaches that capitalize on innovation-driven opportunities while mitigating risks stemming from demographic shifts and fiscal challenges.
Asset Class Return Outlooks Tied to AI and Market Developments
The CMA's comprehensive view extends across various asset classes, with specific return projections influenced by technological, economic, and regional factors:
- Equities: In the United States, annualized equity returns are expected to average around 6.8%, propelled by productivity gains linked to technology. Japanese equities are forecasted to grow approximately 7.3%, driven by stimulating economic and market factors. Australian stocks anticipate roughly 7.7% growth, supported by robust banking sectors and natural resource endowments.
- Fixed Income: Long-term outlooks for fixed income investors are optimistic, with U.S. investment-grade bonds projected to yield around 5% annually and U.S. Treasurys about 4.6%. European, U.K., and Japanese bonds are expected to provide steady income accompanied by relatively low volatility.
- Real Assets: Demand for real assets is projected to rise, particularly as AI development stimulates infrastructure investments. Northern Trust anticipates global infrastructure returns of approximately 6.7% per year, natural resources around 6.4%, and global real estate about 6.2% annually.
The CMA functions as Northern Trust's annual framework for long-term return expectations, directly informing investment decisions and strategic asset allocation. As of September 30, 2025, Northern Trust manages assets totaling $1.4 trillion, emphasizing the importance of such comprehensive market analysis to its investment process.