5 Investment Risk Trends Shaping 2026

Investment teams already had their hands full in 2025, contending with tariff-driven swings, market volatility, and persistent inflation and rate uncertainty. The first half of 2026 has only compounded those pressures.  

Geopolitical shocks tied to the Middle East conflict and shifting Federal Reserve policy have reintroduced macro volatility. A negative outlook for private credit is raising questions about leverage and margin compression.  

Plus, the rapid growth of semiliquid funds is outpacing advisor familiarity with their liquidity terms and fee structures. Meanwhile, artificial intelligence is simultaneously becoming a core risk-management tool and a new source of concentration, data, and compliance risk. 

This blog breaks down each of these trends and offers practical steps investment teams can take to manage them. Here are five drivers of risk investment teams should have on their radar. 

In February 2026 conflict in the Middle East sent crude oil prices sharply higher. A mid-year peace deal brought those prices back down, with oil falling roughly 30% from its wartime peak to around $80 a barrel, though still above where prices stood when the war began.  

The shock pushed US inflation to its highest level in three years, keeping the Fed on hold for much of the first half of the year. Rate-cut expectations that asset and wealth managers had built into their 2026 outlooks now face a further complication, since the central bank has signaled its next move may be a hike rather than a cut. 

Correlations across asset classes can also rise sharply in downturns like the one triggered by the Middle East conflict, undermining the diversification benefits investment teams count on. Separately, escalating trade-policy uncertainty in 2025 prompted many European investors to pull back from US equities, though flows data suggest that rotation may already be losing momentum as of April 2026.   

What can investment teams do?

Stress test portfolios against geopolitical and rate-path scenarios rather than relying solely on historical correlations. Revisit rate-cut assumptions baked into 2026 outlooks, given the shift in the Fed’s intentions for rates.

Investment teams are already using AI to run faster scenario analysis, surface patterns across larger datasets, and generate real-time insights that once took analysts days to compile. Unfortunately, AI doesn't just help manage risk, it can also introduce its own. 

Fragmented or low-quality data can lead AI systems to produce unreliable outputs. As AI becomes more embedded in workflows, teams also face rising compliance and regulatory uncertainty, along with reputational exposure if AI-generated outputs prove biased or inaccurate.  

AI is also reshaping the investable universe. US AI-focused fund assets peaked at $25.4 billion in January 2026 and still sit at roughly 75 times their November 2022 level. Most of these funds are heavily concentrated in the Magnificent Seven and create overlap risk with core equity holdings elsewhere in client portfolios.  

That risk isn't confined to public markets. The AI infrastructure boom has fueled a parallel surge in private credit financing data center construction, and in the first quarter of 2026, concerns about AI disruption drove a roughly 20% decline in share prices of some of the largest alternative asset managers, while private credit fund inflows dropped by more than a third in the first two months of the year.  

Because private credit valuations update quarterly rather than daily, the full extent of any AI-related credit stress may take longer to surface than it would in public markets. On the infrastructure side, estimated AI spending is projected to reach $452.7 billion in 2026, up from $375.6 billion the year before. Data centers require significant electricity and freshwater, costs that may prove more capital-intensive than hyperscalers currently assume. 

What can investment teams do?

Treat AI as both a tool and an investment theme that require the same rigor as any other risk source. Build governance frameworks early, maintain audit-ready workflows, ground AI systems in high-quality data, and apply consistent standards when evaluating AI-related funds, equities, and private credit exposure.

Global private markets measured in at $16 trillion by the end of 2024, and long-term forecasts project that figure will eclipse $24 trillion by 2029. 

By the beginning of 2026, more than 1,450 private companies had achieved "unicorn" status, meaning a valuation of at least $1 billion, reflecting how much investment activity now sits outside public markets. It has become common for institutional asset owners to allocate 15%, 20%, or even 30% of their portfolios to private market investments, says Morningstar strategist Dan Lefkovitz.  

Private equity is entering a phase of measured momentum, with platform buyouts expected to make up 25% or more of total deal activity in 2026. Portfolio construction increasingly has to account for structure, not just exposure. Ignoring structure can lead to unintended liquidity shortfalls or mismatches between portfolio design and client expectations during market stress. 

What can investment teams do?

Treat private assets as an extension of existing equity and credit exposure rather than a standalone, risk-free diversifier. Teams should also evaluate every allocation against the underlying problem it's meant to solve: return enhancement, diversification, income, or inflation sensitivity.

Morningstar DBRS's outlook for private credit quality remains negative in 2026, with margin compression and rising leverage cited as key challenges. Operating results for corporate middle-market borrowers reviewed in 2025 showed increased margin compression from a year earlier, while leverage rose materially on lower base rates and increased acquisition activity.  

European borrowers are better positioned than their US counterparts, reflecting more stable cash flow metrics and improved interest coverage ratios. Headlines around private credit, including pro-rated withdrawals at some of the industry's largest firms, such as BlackRock, Blackstone, and Morgan Stanley, are not isolated events but a structural reflection of semiliquid funds, where liquidity is conditional, not guaranteed. Despite that pressure, semiliquid fund assets keep growing, with direct lending alone exceeding $230 billion in assets under management across relevant Morningstar categories. 

What can investment teams do?

Apply a "Premium" filter to every private credit allocation. This means targeting an excess return of at least roughly 2% over comparable public exposures, and confirm that expected returns still clear fees, cash drag, and structural complexity before committing capital.

The broader semiliquid fund market is nearing $600 billion in assets, up 41% since the end of 2024, yet only 16% of financial advisors report being "very familiar" with semiliquid fund structures, according to Morningstar's 2026 Investor Perspectives Survey.  

Most semiliquid funds cap redemptions at just 5% of fund assets per quarter, and both Blackstone Private Credit Fund and Cliffwater Corporate Lending, the two largest private credit semiliquid funds, reported rising redemption requests in 2026 as sentiment toward private credit cooled. The average semiliquid fund expense ratio in the US runs about 3%, compared with roughly 1% for actively managed mutual funds and Exchange-Traded Funds, and 0.4% for index funds.  

Many funds have historically excluded incentive fees from published fee tables, understating true investor costs. Structure varies meaningfully by region, too.  

In Europe, reforms to European long-term investment funds, also known as ELTIF 2.0, reduced the minimum exposure to illiquid assets from 70% to 55%, enabling evergreen ELTIFs. In the UK, long-term asset funds assets sit at around EUR 5 billion with an additional EUR 3 billion in committed capital. 

What can investment teams do?

Assess liquidity as a portfolio-level risk rather than a fund-level detail. Use a variety of metrics across size, time, cost, and resiliency rather than any single measure.

Morningstar Direct is constantly evolving as the world of finance evolves. From new AI-powered tools like Direct AI Assistant that surfaces market insights in an instant, to private market solutions including in-depth semiliquid fund data and powerful portfolio tools that spotlight what’s really in your portfolios, Direct is essential for empowering investor success.