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VideoAsset Management Markets, Commercial Real Estate and Regulatory Update: Asset Management Risk Insights
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Global markets regained momentum during the second quarter of 2026 following an uneven start, but beneath the recovery, asset managers continued to navigate a complex investment and regulatory environment. While resilient corporate earnings and continued investment in artificial intelligence supported equity markets, fundraising conditions, commercial real estate fundamentals and regulatory expectations remained challenging.
This quarter's risk insights examine the developments shaping investment management, including evolving public and private market trends, commercial real estate fundamentals and significant regulatory proposals affecting private fund advisers and retirement plan investments. Together, these themes highlight the importance of balancing growth opportunities with disciplined governance and risk management.
Market Update: Recovery Follows Early-Quarter Volatility
Q2 2026 global financial markets were characterized by heightened volatility followed by a broad recovery in global equity. Markets entered the quarter under pressure from escalating geopolitical conflict in the Middle East, higher energy prices and uncertainty surrounding inflation and central bank policy. As the quarter progressed, easing geopolitical tensions, resilient corporate earnings and continued investment in artificial intelligence (AI) infrastructure supported a strong rebound in global equities.
Equity markets generally finished the quarter higher, led by technology and AI-related companies. Investment trends broadened to cover the full AI infrastructure ecosystem, including semiconductor manufacturing, memory, networking, power and cooling and data centers, rather than just GPU manufacturers. Value-oriented sectors and energy also benefited during periods of rising commodity prices. Emerging markets, particularly in Asia, outperformed many developed markets as improving global risk sentiment and technology demand supported returns.
Fixed income markets experienced mixed performance as government bond yields remained elevated amid inflation concerns and increased sovereign debt issuance. However, higher yields continued to provide attractive income opportunities, while corporate credit fundamentals remained broadly resilient despite tight credit spreads.
Q2 2026 was a challenging quarter for digital assets, characterized by falling prices, ETF outflows and a rotation of institutional capital toward AI-driven equities. However, underlying adoption trends continued to improve as tokenization, stablecoin infrastructure and institutional blockchain applications continued to advance.
Private market fundraising remained challenging as slower realizations and constrained institutional liquidity reduced the pace of new commitments. LPs are becoming increasingly selective with their managers and are seeking high quality co-investment and GP stakes investment opportunities. Institutional investors are seeking longer-term strategic relationships rather than traditional fund by fund relationships.
Private Markets: Retirement Plan Access Moves Closer to Reality
The comment period closed on the proposed Department of Labor (DOL) rule to allow the use of private equity, private credit, real estate, infrastructure and other alternative assets within 401(k) plans. The proposal established a safe harbor to assist fiduciaries in evaluating whether private market investments are appropriate for directed retirement plans under ERISA's fiduciary standards.
The most significant implication for plan sponsors is the heightened emphasis on fiduciary governance, which extends well beyond the initial selection of an investment option and requires continuous oversight throughout the life of the investment. Organizations considering private markets will need:
- Robust governance and due diligence processes to evaluate manager qualifications, investment strategy, historical performance, valuation methodologies, liquidity characteristics, fee structures, conflicts of interest and operational capabilities
- Comprehensive documentation demonstrating the rationale for selecting the investment, how it compares to available alternatives and why the allocation is appropriate for the participant population
- Ongoing monitoring, including periodic reviews of performance, risk, liquidity, valuations, fees and operational controls, and continued alignment with the plan's investment objectives
- Operational readiness addressing participant contributions and withdrawals, daily unit pricing, capital calls, cash management, valuation timing, recordkeeper capabilities and participant communications
- With the operational and fiduciary complexities, private market exposure is expected to be offered primarily through professionally managed target date or diversified funds rather than as standalone investment options.
The DOL has moved from asking whether private markets belong in 401(k) plans to defining how fiduciaries can include them. This represents a $12T market for private fund advisers, and roughly 40,000 comments were received indicating strong industry interest along with significant concerns about how this would be implemented.
Commercial Real Estate: Recovery Continues but Risks Persist
Q2 market fundamentals reflected a continued uneven U.S. commercial real estate (CRE) recovery, with leasing activity and capital flows improving. Energy and insurance costs also reduced NOI where owners could not offset increases through rent growth or expense pass-throughs. Capital markets gained traction entering Q2, with U.S. direct transaction volume reaching approximately $110.7 billion in Q1 2026, up 18% year-over-year.
Market forecasts indicate continued downward pressure on commercial real estate values. The Federal Reserve held the federal funds target range at 3.50% to 3.75% in June, and debt costs are increasing faster than values are recovering, placing the greatest write-down and DSCR risk on assets with weak cash flow, near-term maturities or limited refinancing support.
CRE sector updates:
- AI infrastructure demand has pushed data centers to the forefront of U.S. CRE investment activity. Vacancy in primary markets has tightened to near record lows, power availability and long interconnection timelines are constraining new supply.
- Industrial leasing increased 14% year-over-year, driven by logistics demand and flight-to-quality requirements.
- Multifamily vacancy declined to 4.8% as absorption outpaced completions.
- Necessity-based and well-located retail centers continue to outperform, as limited new construction supports rent growth.
- Office drags on the broader market, with prime assets outperforming.
Tariffs on steel, aluminum, lumber and copper are lifting construction and replacement costs, increasing both the adviser carrying costs and property insurance premiums. The same dynamic is influencing reshoring and inland supply-chain strategies, supporting demand in select interior logistics hubs.
| Asset Class | Strategic Drivers | Market Outlook |
|---|---|---|
| Office | Prime office continued to outperform, vacancy fell 80 bps to 12.7% in Q1 2026 (Midtown Manhattan prime: 2.9%), while overall vacancy edged down 10 bps to 18.6%. | Risk remains concentrated in commodity Class B/C assets and weaker submarkets, where leasing velocity, capex needs and financing support are not keeping pace with obsolescence. |
| Industrial | Leasing rose 14% year-over-year in Q1 to 249.8 million square feet, supported by logistics demand and flight-to-quality requirements. | Vacancy reached 6.7%, signaling normalization. Rent growth and absorption remain tied to submarket supply, building functionality, infill access and tenant credit. |
| Multifamily | Vacancy fell to 4.8% in Q1 2026 as net absorption outpaced completions for the first time in three quarters. | High-supply Sun Belt operators are using concessions to protect occupancy, leaving effective rent growth and expense control as the key NOI drivers. |
| Retail | Asking rents rose 2.4% year-over-year to $24.59/SF in Q1 2026, driven by limited new construction and Sun Belt demand. | Performance remains strongest in necessity-based and well-located centers; weaker discretionary tenants and lower-income trade areas carry higher rollover risk. |
| Alternatives | Data centers remain the clearest growth segment, with Northern Virginia vacancy at 0.3%. Senior housing and medical office also benefit from demographic demand. | Returns are constrained by power availability, interconnection timing, labor availability, development costs, reimbursement exposure and operating expertise. |
Regulatory Update: SEC Focus Shifts Toward Targeted Modernization
The SEC’s regulatory approach continues to shift from broad expansion of regulation towards targeted modernization and simplification of existing rules. Private markets remain one of the highest strategic priorities.
Examinations continue to focus on fiduciary duties, valuation, conflicts of interest and governance. The SEC is also reviewing AI use and governance, cybersecurity and operational resilience frameworks.
SEC and CFTC Propose Targeted Relief for Private Fund Advisers
The SEC and CFTC jointly proposed amendments that would reduce certain Form PF reporting obligations, continuing a broader effort to recalibrate reporting requirements and focus regulatory oversight on larger market participants that may present greater systemic risk.
Among the proposed changes is an increase in certain reporting thresholds to $1 billion in private fund AUM, significantly reducing the number of advisers required to file Form PF.
While the proposal reflects a potential reduction in compliance burden, firms should not interpret the changes as a reduction in regulatory expectations. Advisers will continue to be expected to maintain effective governance, risk management, and compliance frameworks regardless of whether Form PF reporting obligations ultimately apply.
Qualified Client Thresholds Increase for Investment Advisers
The SEC updated its qualified client thresholds, increasing the AUM to $1.4 million and the net worth threshold to $2.7 million. Firms should review subscription materials, investor questionnaires, transfer documentation and onboarding procedures to ensure consistency with the revised eligibility requirements. The revised standards are particularly relevant for advisers that utilize carried interest, incentive allocations or other performance-based compensation structures.
Advisers approaching fundraising events, investor transfers or new closings should confirm that investor qualification procedures have been updated accordingly.
SEC and CFTC Continue Efforts to Harmonize Derivatives Oversight
The SEC and CFTC have jointly launched an initiative to promote greater consistency across securities and commodities regulatory regimes, proposing changes relating to derivatives product definitions, reporting frameworks, and portfolio margining requirements.
While the developments do not currently impose new compliance obligations, they may ultimately influence how derivatives activities are reported, supervised and regulated, simplifying certain compliance processes.
Q2 2026 Outlook: Balancing Opportunity with Operational Discipline
Market sentiment improved during the second quarter, but asset managers continue to operate in an environment shaped by selective capital formation, evolving regulatory expectations and uneven performance across asset classes. Growth opportunities remain, particularly in AI-related infrastructure and selected real estate sectors, but firms will need strong governance, disciplined investment processes and proactive compliance frameworks to capitalize on them.
As the market evolves through the second half of 2026, disciplined governance, thoughtful risk management and proactive planning will remain essential. Contact us to discuss how these trends may affect your organization.
©2026
