Private market allocations rose to 17% of the average institutional portfolio in 2026, up from the prior year, as access to top funds grows harder to secure
Nearly every major institutional investor now holds private markets exposure and the operational strain is showing.
Ninety-four percent of asset owners surveyed invest in private markets, up from 86 percent in 2025, according to Northern Trust's second annual Asset Owners in Focus study.
The report polled 181 senior leaders across pension funds, insurance general accounts, endowments, superannuation funds, and OCIOs globally.
Private market allocations rose to 17 percent of the average portfolio from 13 percent the prior year, with private equity the most widely held sub-asset class at 86 percent, followed by real estate (82 percent), private credit (78 percent), and natural resources and energy (69 percent).
The study found institution size no longer determines propensity to allocate to private markets, with small, mid-size, and large asset owners all clustering around a 16 to 18 percent allocation range.
The convergence signals how broadly the asset class has taken hold across the institutional landscape.
Access, however, is tightening.
Thirty-one percent of respondents named difficulty gaining entry to desired funds and managers as a top investment challenge, up sharply from 18 percent in 2025, according to the study.
Infrequent fundraising windows, established manager relationships, and high capital commitment thresholds all constrain available capacity.
Operational complexity (61 percent), liquidity concerns (53 percent), and valuation transparency (52 percent) remain the leading portfolio management challenges, particularly acute in North America, where allocators tend to rely on more direct and customised exposures.
The growth of private markets is compounding liquidity pressures across portfolios.
Sixty percent of respondents told Northern Trust that liquidity became more important over the past 12 months, but why it matters has shifted.
The interest rate environment remained a top driver, though the share citing it fell to 60 percent from 75 percent in 2025.
Risk strategy changes rose to 56 percent from 43 percent, and banking counterparty risk entered the top three at 36 percent.
Investment in lower-risk, short-term cash vehicles was the most common response among those for whom liquidity had grown more important, at 58 percent, the study found.
Among those holding cash allocations above 5 percent, 38 percent cited market volatility and risk mitigation, suggesting liquidity is now managed as a defensive tool rather than a return enhancer.
Ian Hamilton, head of Asset Owners, Europe at Northern Trust Asset Servicing, said the tilt toward private markets makes tight liquidity management "unavoidable," driving demand for granular analytics and a total portfolio view of risk on a timely basis.
Sixty-eight percent of respondents named harnessing the power of AI as a top operational challenge, up from 56 percent in 2025, according to the study — but foundational data problems are slowing progress.
Data integration across sources and data accuracy each drew 57 percent as top technology obstacles, and the study noted these challenges persist even as technology investment increases.
Most AI deployment remains tactical.
Sixty-five percent of respondents said they rely on general-purpose tools such as Microsoft Copilot or ChatGPT, and respondents identified research summarisation (62 percent), client reporting (63 percent), and data accuracy and quality control (62 percent) as the areas where AI currently delivers the most value.
Jessica Donohue, head of Asset Servicing, Americas at Northern Trust Asset Servicing, described data and analytics as the "connective tissue across the portfolio," linking challenges in liquidity, private markets, and operating model design.
Katherine McCabe, head of OCIO and Commercial Strategy at Northern Trust, said AI "cannot stand in" for a strong operating model — and that disciplined data and workflows will become a competitive advantage as adoption deepens.
The top areas where respondents plan to increase technology spending this year are investment diligence (55 percent), portfolio analytics tools (51 percent), and compliance and regulatory reporting (46 percent).
Forty-seven percent of respondents reported current digital asset exposure, with 40 percent of those allocating more than US$10m, according to the study.
Cryptocurrencies (46 percent) and digitally native ETFs (44 percent) were the most commonly held instruments.
Among those not yet invested, risk tolerance (47 percent), perceived volatility (44 percent), and lack of regulatory clarity (42 percent) were the top barriers.
Among those already invested, analytics (54 percent) and regulatory and compliance support (46 percent) ranked as the leading servicing needs.
Northern Trust's Leon Stavrou said tokenisation of money market funds, collateral, and private assets offers the most credible long-term institutional opportunity, driven by operational efficiency rather than speculation.
The share of respondents insourcing investment operations for efficiency rose to 28 percent in 2026 from 24 percent in 2025, while outsourcing for the same purpose edged down to 24 percent from 27 percent, the study reported.
More than half of respondents (55 percent) still outsource transaction capture and processing for alternatives, and 39 percent outsource trade execution.
The pattern points to a hybrid model in which asset owners retain portfolio construction and oversight while delegating execution-heavy work externally.
The study cited geopolitical instability as the top external investment challenge at 75 percent, followed by interest rate changes at 56 percent and domestic political instability at 55 percent.
