PPI LA JOLLA
PERSPECTIVES
February 25-27, 2026
Authored by Matthew Leatherman for PPI
Managing choices rather than solving an optimization equation is today’s challenge for investors.
Global asset owners, investment leaders, policymakers, and industry practitioners returned to this challenge frequently at PPI’s February 2026 Roundtable in La Jolla, California. Accelerating artificial intelligence (AI) development, evolving private market structures, and heightened geopolitical volatility create an uncertain backdrop for investors today, yet the work of adapting portfolio strategy, governance, and partnerships continues.
Investor Decision-Making Within Today’s Uncertainties
The Big Picture
(apologies for the audio issue)
The United States appears set to resume its recent growth pattern of approximately 2.8 percent after 2.2 percent in 2025. A tariff plateau is integral to this more bullish case. The U.S. administration appears more focused on maintaining the tariff regime than on further increases, likely to avoid additional price hikes before the midterm elections.
European trends appear generally weaker, in part because technology contributes significantly less to European growth. German fiscal expansion driven by defense spending may provide a short-term boost, and Spain may also continue to be a bright spot, but France offers a countervailing case. Deficits, debt, and taxation are high, and the appetite to cut social spending is absent.
China’s macroeconomic story is two-fold. Manufacturing for export to the world economy remains strong due to cost advantages and can pull the growth forecast upward. Yet the domestic economy drags heavily on growth, in part because its housing bubble has burst. Taken together, China’s historically high trade surplus appears set to continue growing.
Investors will continue to monitor the relative rewards for alpha and beta based on these inputs, and newer asset allocation methods will help.
The Choices
Total Portfolio Approach (TPA) methods increasingly frame how investors think about asset allocation. The essence of TPA is that it allows an investor to accept a wider tracking error to dynamically adjust the portfolio and achieve higher compound returns. This is closer to an absolute-return mindset, an improvement over relative-return mindsets that ignore risk within benchmarks.
The options market can inform investors about how to create that additional upside. It distinguishes between upside and downside volatility, unlike the Sharpe model, which assumes they are symmetrical. Importantly, it often takes time for this upside to materialize, and investors who adopt this asset allocation model first need to build trust with their board so they are not stopped out along the way.
The foundation of that trust is understanding the drawdown that the board can endure and conveying to the board how staff will manage risk to respect that boundary. Focusing on drawdown instead of a reference portfolio is also advantageous because the diversification assumed by the reference portfolio is absent in stressed markets.
Trust is a comparative advantage once an investor gains it. Higher trust means fewer constraints. One example is re-risking during a market phase change. An investor who can see others’ constraints and re-risk when they choose is likely to profit.
Building and maintaining this trust is an ongoing effort for investors.
The Decisions
The work of asset owners—and the managers who support them—is to allocate assets in ways that finance pensions or meet other long-term needs, subject to board and sponsor oversight. This is about managing risk and uncertainty effectively, rather than filling out portfolios based on prior market prices and then assessing them against broad index benchmarks.
Investors increasingly focus on the liquidity of assets rather than whether they are traded publicly or privately. Their diversification effect appears overstated because correlations tighten under stress, and what distinguishes them is that public market investments are the primary source of total fund liquidity for repositioning.
Investors will apply these decision-making methods to AI-related allocations. Top-down, it is clear that AI will drive massive transformation; that the specific winners and losers will not be clear for some time; and that the pace and path of the transition will be uneven. Markets with those traits tend to reward long-term risk-taking by investors who think critically about the entire distribution of opportunity, not just means and medians, and can shift it a bit to the right.
Many other decisions are necessarily bottom-up right now. It is difficult at best to define a top-down AI factor, and even when one seems to come into focus, it is obsolete within months. Underwriting securities and portfolios at the pace that AI is moving through the markets is challenging enough.
Steering portfolios through these and many other choices will remain allocators’ top priority. From their perspective, modern economies have many buffers that can absorb noise, geopolitical or otherwise, and allow them to focus on the trends most likely to matter over time.
Liquidity in Private Markets
Evolving Opportunity
The pandemic shock fundamentally changed investors’ approach to liquidity in private markets. Liquidity was critical; many investors had to turn to the secondaries market, and they learned along the way that secondaries can be helpful in more ordinary times as well. The result was destigmatization.
Limited Partners (LPs) can use secondaries to trim and concentrate portfolios to best fit the specific risk profile they seek to achieve. For instance, LPs commonly want growth exposure and may rebalance via the secondary market when a particular fund holds more mature companies that choose to remain private. General Partner (GP) buyers also benefit because they can purchase assets continuously, at the pace of their underwriting discipline.
Net asset value (NAV) financing also offers important tools. These loans are an option when an LP wants to continue holding an investment but also access liquidity. They can also allow a GP to continue adding attractive companies to a portfolio late in its life, after all investment capital has been called, or to fund capital calls without having to sell on the secondary market.
These financing structures raise a question for investors about how the illiquidity premium may be changing. At present, transactions such as secondaries and NAV financing appear to affect only the marginal value of that premium, not its overall persistence.
Evolving Participation
Evergreen structures and regulatory change are helping retail investors enter the private markets. In general, the volume of these private wealth inflows does not seem large enough to affect institutional pricing anytime soon – with one clear exception. AI companies often turn to high-net-worth investors first and at levels that can affect institutional deal flow.
Institutions may experience a shift in the supply of co-investment opportunities as retail participation in private markets grows. No-fee/no-carry deals can make sense for GPs when the LP is committed to making investments when they are available. Institutional LPs that negotiate these deals do not always follow through on co-investments, though, and private wealth investors can be more efficient for GPs in those cases.
Institutional LPs may benefit from making faster, more effective decisions on co-investment opportunities and from remaining diligent about the risk of liquidity mismatches for GPs, including pursuing limits on the overall size of a fund and the share of it accessible to retail investors.
Table Discussions:
Should Investors Run Towards or Away From the AI Bubble?
AI Applications
Building Understanding
Investments in AI today are historic. Approximately one percent of gross global product is going to AI right now. Only four other technologies have matched that scale over the past 200 years: rail, electrification, agricultural mechanization, and the internet.
Agentic AI is just one component of this overall investment, but it may have the biggest eventual impact. It can:
Bring human decision-making to the forefront. For instance, investors know that being early to a trade is most profitable, and they can let an AI agent handle speed of execution while keeping humans focused on the contrarian thinking needed for investment strategy.
Reshape how asset owners and managers work together. Owners may be able to use agentic AI for internal diligence on co-investment opportunities, for example, and commit more of the share available and drive down marginal cost. It could also help owners monitor investments they chose not to make and learn how well they select and size opportunities.
Offer the massive combinatorial thinking needed to see more of the potential interactive effects of investments. A prime example would be how infrastructure allocations may need to change alongside investments in self-driving transport.
Investors may benefit as much from what they can learn and scale from these investments as from the returns on particular positions right now. Owners can benefit particularly because, given the duration of liabilities, the exact pace at which this unfolds is less important.
Capitalizing on Understanding
Investors must adjust their asset allocation as the AI revolution unfolds. Markets want to know which companies will be winners and which will be losers. This can seem like a reasonable question, given the low volatility of mega-cap equities and investment-grade credit, but that reflects net inflows more than investment certainty. Single-name volatility within these indices is high, and AI thematic risk is concentrated.
Rebalancing has served long-term investors well over time and will likely continue to do so. This measured approach can also help investors better understand the problems they are trying to solve or the risk-taking they are financing with AI allocations.
Looking ahead, AI is very capital-intensive, so productivity gains are likely to spread much more slowly than from the internet, to which AI is often compared. Time is an asset for investors.
Mobility as an Example
Multiple types of companies are part of the AI mobility transition. These include vehicle manufacturers, owners, drivers—whether human or AI—and platforms such as Uber, Lyft, and others. Businesses compete within these categories but have to cooperate across them. For instance, a company providing AI driver technology depends on the manufacturer, vehicle owner, and platform being compatible with that service.
Investors’ underwriting of these assets will include bottom-up thinking, such as the market for data generated by AI-driven vehicles, and top-down considerations, such as the asset class or risk factor that will house investments with venture-style upside today but potentially infrastructure-like cash flows in the future.
The World Order and the Investable Universe
The End of Pax Americana
Pax Americana has ended. Historical allies of the United States are not going to extend that trust to the U.S. again. Canadian Prime Minister Mark Carney simply stated this fact out loud in his speech at Davos.
China is using transatlantic friction to sharpen its message to Europe: “What you see is what you get with us, but Americans are so unpredictable.”
By contrast, Russia is threatening Europe, and European countries’ responses vary widely. Poland and the Nordic and Baltic countries are truly committed to investment in their defense. German defense investment appears substantially motivated by national economic competitiveness. In some other countries, the commitment to defense spending seems more like rhetoric than reality.
One fact is clear. U.S. influence around the world will be lower for the long term. The U.S. has dismantled large parts of its diplomatic apparatus, and even if more traditional administrations return to power, they will have to spend time and money rebuilding rather than using those tools.
Other inferences also seem likely. Tariffs seem entrenched. Critical mineral competition appears persistent. Alliance relationships may rebound partially from their severe low today.
Foremost, whatever replaces Pax Americana is likely to be more complex.
The Coming World Order(s)
The driving question for countries and institutions around the world today is, “What’s next?” The question does not have an answer right now. Indeed, the recent world order may be replaced by multiple orders operating in parallel. Investors would find that particularly challenging because capital may not flow freely, constraining the investable universe.
Innovation is surging within the disruption. Private investors may find the opportunity in next-generation defense technology, but the challenge will be going to where this innovation is happening, in Ukraine. Defense innovation today will achieve scale only if investors finance it where it is occurring.
Investors will help determine “what’s next” by how open they can keep their investable universe, how they take on financing innovation, and how well they can preserve the interconnected industrial base of Western countries.
Bottom Line
Strategically capitalizing on the AI revolution is the foremost choice facing institutional asset allocation today. Private markets are expanding the investors’ decision-making toolkit by becoming more liquid, even as changes in the world order add major uncertainty. Steering portfolios through these and many other choices will remain investors’ top priority.