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Ext. PublicationPrivate Credit Liquidity, CRE Refinancing and Evolving Regulation: Asset Management Risk Insights
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Global financial markets entered 2026 with modest gains, supported by easing inflation and expectations of central bank rate cuts. However, performance across asset classes was uneven, and underlying volatility highlighted a more complex risk environment for asset managers.
Across the first quarter, market dynamics, liquidity pressures in private credit, commercial real estate stress and evolving regulatory coordination signaled a shift toward tighter scrutiny and more structural challenges. As firms look ahead, balancing performance with disciplined risk management and governance remains a central priority.
Market Update: Modest Gains Amid Volatility
Global markets delivered positive but uneven results in Q1 2026. Markets began near record highs, declined mid-quarter amid geopolitical tensions and rising oil prices, then rebounded toward quarter end. Earnings remained strong but were heavily concentrated in technology, artificial intelligence and semiconductor sectors.
Fixed income markets experienced similar volatility. Early expectations of Federal Reserve rate cuts drove yields lower in the first part of the quarter, but a late-quarter inflation spike tied to energy markets reversed that trend.
Looking ahead, attention is shifting back to monetary policy and economic data. Federal Reserve decisions and key indicators such as retail sales and industrial production will likely shape near-term market direction, with uncertainty persisting around whether policymakers prioritize slowing growth or stubborn inflation.
Private Credit: Liquidity Stress Emerging
Private credit markets showed signs of increased liquidity stress during the quarter. Publicly traded vehicles, particularly business development companies (BDCs), began trading at significant discounts by quarter end, reflecting investor concerns around valuation accuracy and exit pricing.
At the same time, certain nontraded funds faced elevated redemption requests, leading to gating mechanisms and prorated withdrawals. These developments underscore a growing mismatch between investor liquidity expectations and the underlying illiquidity of private credit assets.
Fundraising also weakened, particularly among high-net-worth investors, with capital raised declining significantly year-over-year. In response, regulators have increased scrutiny of valuation practices, transparency and systemic risk across the sector.
Commercial Real Estate: Refinancing Pressure Builds
Commercial real estate (CRE) remains a significant area of concern heading into 2026. Approximately $930 billion in loans are scheduled to mature this year, including at least $126 billion already classified as distressed and only 21% of owners expect to pay off maturities in full.
Refinancing conditions have shifted dramatically. Loans originated in a low-rate environment of 3% to 4% must now be refinanced at rates closer to 6% to 7.5%, placing pressure on debt-service coverage ratios and compressing asset valuations.
As extension options diminish, a backlog of defaults is beginning to emerge. CMBS delinquency rates have risen sharply, and regional banks, many with concentrated CRE exposure, face increased tail risk. Consequently, foreclosure activity in 2025 reached the highest mid-year total since 2014.
External pressures are also mounting. Climate-related events, including severe storms that generated significant insured losses globally, are contributing to rising insurance costs and reduced coverage availability. These factors are beginning to influence net operating income and long-term asset performance.
Sector Bifurcation and Alternatives
Office: Structural bifurcation is entrenched. Trophy assets demonstrate resilience, while older Class B or C assets face severe functional obsolescence and elevated vacancy rates (~20% nationally).
Multifamily and industrial: Sun Belt multifamily markets face oversupply and margin compression, contrasting with supply-constrained coastal markets. Industrial properties are reaching a cyclical inflection point where supply begins to outpace demand.
Amid core sector volatility, alternative asset classes present differentiated risk-adjusted return profiles driven by idiosyncratic growth factors.
| Asset Class | ||
|---|---|---|
| Data Centers | AI-driven demand concentrated in major hubs; strong pre-commitment pipelines | High growth with idiosyncratic risks |
| Senior Housing | Favorable demographic trends combined with limited new supply | Strong return potential |
| Medical Office | Defensive income profile with low correlation to broader economic cycles | Stable, low-volatility income |
Climate Exposure and Regulatory Impacts
In 2025, global natural disasters resulted in approximately $260 billion in economic losses, leaving a $133 billion uninsured protection gap. Moody’s projects that physical climate risks could drive a $41.4 trillion global economic impact by 2050, reinforcing long-term implications for real estate valuations.
Severe convective storms alone generated $61 billion in insured losses globally in 2025. The increasing frequency of these events is contributing to sustained premium increases and reduced coverage availability in high-risk areas, with direct implications for commercial real estate net operating income (NOI).
At the regulatory level, climate-related disclosure requirements continue to evolve across key jurisdictions. In California, Senate Bills 253 and 261 introduce Scope 1, 2 and 3 greenhouse gas emissions reporting and climate-related financial risk disclosures. These requirements remain subject to ongoing legal challenges and enforcement pauses, although Scope 1 and 2 reporting deadlines are still targeted for 2026 amid continued uncertainty.
In New York City, Local Law 97 establishes greenhouse gas emissions limits for buildings over 25,000 square feet, with penalties of $268 per metric ton for exceeding thresholds. These requirements introduce material capital expenditure considerations for legacy assets as the market assesses long-term value impacts.
Globally, regulatory frameworks are shifting from voluntary guidelines toward mandatory financial disclosures, influencing cross-border capital allocation and fund marketing strategies. In the European Union, the proposed SFDR 2.0 introduces fund categorizations such as Sustainable, Transition and ESG Basics, while the Corporate Sustainability Reporting Directive (CSRD) standardizes portfolio-level sustainability data. At the same time, ongoing simplification efforts under the Omnibus package are creating legal uncertainty and revised implementation timelines.
In India, for the 2025-26 cycle, the top 250 listed entities disclose ESG performance across their value chains. This framework emphasizes tracking and auditing GHG intensity for Indian portfolio companies, aligning with institutional LP data preferences.
In Australia, mandatory climate reporting is now integrated into ASIC financial reporting. This integration shifts ESG from a marketing function to a core compliance consideration, focusing on quantifying climate-related financial risks and transition plans starting in 2025 or 2026.
Digital Assets Regulation: Increased Coordination and Clarity
Regulatory activity in Q1 2026 reflects a broader push to align oversight across asset classes and emerging investment strategies. A key development is the formal memorandum of understanding between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), which establishes a framework for coordination in areas of overlapping jurisdiction. In a demonstration of the new joint framework, on March 17, 2026, the SEC and CFTC issued a joint interpretive release clarifying how crypto assets are classified under U.S. law and when non‑security tokens may still fall under securities rules.
This approach is geared to institutional, nonretail structures. It does not remove derivatives related reporting or risk disclosure expectations that still apply to SEC registered advisers. For investment advisers, this signals that crypto and digital asset strategies will be reviewed through existing regulatory frameworks, with consistent expectations around disclosure, custody, valuation and risk management. The initiative does not introduce new registration requirements, but it clarifies how regulators will collaborate and share information.
In parallel, recent CFTC no-action relief may reduce compliance burdens for certain private fund advisers by allowing them to avoid commodity pool operator registration under specific conditions. This also may streamline operations while not eliminating existing reporting or risk disclosure obligations tied to derivatives usage. This covers private fund advisers whose funds are offered only to qualified eligible persons (QEPs), as long as the stated conditions are met and responds to concerns that advisers can end up with overlapping SEC and CFTC requirements simply because a fund uses derivatives or other commodity interests. Eligible advisers may be able to sidestep CPO registration and NFA membership for a particular fund, which can reduce time and cost on the compliance side.
2026 Outlook: Managing Risk in a More Complex Environment
The first quarter of 2026 highlights a key theme for asset managers: strong market performance can coexist with rising structural risk. Liquidity constraints, refinancing pressure, regulatory coordination and evolving disclosure expectations are converging to create a more demanding operating environment for asset managers.
Firms that prioritize governance, transparency and proactive risk management will be better positioned. Strengthening valuation practices, aligning liquidity terms with underlying assets and maintaining clear regulatory compliance frameworks will be critical as market conditions evolve.
How Weaver Can Help
As market conditions shift and regulatory expectations expand, asset managers face increasingly complex challenges. Weaver’s asset management consulting team works with firms to assess emerging risks, enhance governance frameworks and prepare for increased regulatory scrutiny. Contact us to learn more about how these developments may impact your organization.
©2026
