Navigating the complexities of US equities and private markets in 2026

From the impact of US trade tariffs to the continued growth of private markets, and from climate-investing headwinds to the artificial intelligence megatrend, investors faced a complex landscape over the past year. Pensions Expert canvassed consultants and asset managers on whether US equities should remain dominant in portfolios, how schemes can mitigate geopolitical risk, and whether private markets have become overheated. Their observations, when set alongside recent industry studies and market analysis, point to both opportunities and structural risks that trustees will need to weigh carefully in 2026.

The persistence of US equity dominance is both structural and contentious. Alison Fleming, pensions partner at PwC, cautioned that “there are alternative ways to weight equity portfolios than by market capitalisation. The US dominance of global equity indices is not new, but has been pushed to new highs by gains in the largest stocks. The US will continue to play a major part in portfolios given the breadth and depth of the market, albeit some are certainly tilting away from a market capitalisation weighting.” Barry Jones, chief investment officer at Isio, added that defined benefit schemes have been “taking profits and reducing overall equity exposure,” while defined contribution and LGPS investors are seeking strategies such as put protection and regional rebalancing to manage concentration risk. Alastair Greenlees of Van Lanschot Kempen argued that a shift toward credit-focused investing among UK defined benefit schemes will make many sponsors more geographically agnostic.

Those portfolio shifts are being judged against a shifting external backdrop. Goldman Sachs has modelled the potential impact of higher US tariffs and estimates that a 5% rise in the US tariff rate could shave roughly 1–2% off S&P 500 earnings per share, while also potentially strengthening the dollar and compressing overseas earnings. Press reports of new tariffs on major trading partners have already heightened concerns about supply‑chain disruption and inflationary pressure, with retaliatory measures likely to amplify those effects. As the consultants noted, geopolitics feeds through to inflation and funding positions; Fleming recommended scenario analysis and diversification as essential mitigation tools, and Jones observed that the dollar’s role as a safe haven may be less reliable amid unusual market patterns.

Artificial intelligence remains a dominant thematic driver for markets, but views diverge on its breadth and risk. Some see AI as a secular growth engine that justifies concentration in a handful of high‑quality US technology companies; others warn the theme risks becoming excessively concentrated, potentially leaving portfolios vulnerable should policy or growth disappoint. That uncertainty has nudged trustees towards looking for “rewarded risk with genuine security,” according to Isio, with alternatives such as fund finance being highlighted as offering “institutional counterparty exposure, yields of inflation plus 3%, and a relatively sheltered place to wait for better reinvestment opportunities.”

Private markets are central to this reallocation debate. Industry surveys show robust appetite: Aviva Investors’ 2025 Private Markets Study found that 73% of global institutional investors expect private markets to outperform public markets over the next five years, and 56% already allocate at least 10% of portfolios to private assets with many planning increases. A separate study reported by Yieldstreet indicates 94% of private investors are increasing or maintaining allocations, often funded through existing brokerage accounts. MSCI’s recent launch of an All Country Public + Private Equity Index reflects the mainstreaming of private exposure. Taken together, these data points confirm that the trend from public to private is well under way.

Yet the advisers warn against mechanical participation. The lead article’s contributors emphasised due diligence, prudent valuation and attention to leverage: “The key macro concern is leverage. Private companies tend to operate with higher gearing than public companies, and their underlying assets can be harder to analyse,” Isio noted. The Bank of England’s stress tests on private credit, referenced by PwC, underline regulators’ growing focus as the sector expands. MoneyWeek’s analysis of private equity growth and long‑term returns provides historical context, but also flags the headwinds of rising rates and a weak IPO market that can compress exit opportunities and inflate hold‑period risk.

For trustees the question is pragmatic: how much illiquidity and complexity does a scheme’s liability profile allow? Fleming pointed to bonds and capital‑efficient options as tools for different objectives, and Van Lanschot Kempen framed the strategic choice for UK defined benefit schemes as whether to “run on” or de‑risk, noting that current funding dynamics may improve the odds for some schemes. Industry sentiment suggests infrastructure and secured private credit will remain attractive where discounts to net asset value and inflation linkage exist, but managers’ claims should be treated with editorial distance and tested through rigorous governance.

In short, 2026 looks set to be a year of navigation rather than easy answers. US equities retain structural importance but concentration and policy risk are prompting many schemes to rebalance. Geopolitical shocks and tariff risks could reprice earnings and inflation expectations, while private markets offer both diversification and new vulnerabilities tied to leverage and liquidity. Trustees and advisers will need disciplined scenario analysis, clearer articulation of investment horizons, and stringent due diligence to turn the opportunities on offer into durable outcomes for beneficiaries.