Private market allocations are reaching unprecedented levels, even as institutional investors and independent allocators grow increasingly concerned about the risks that artificial intelligence poses to global portfolios, according to two surveys released this week.
Morningstar's fifth annual Asset Owner Perspectives Survey, which polled more than 500 asset owners across 11 countries representing over $20 trillion in combined assets, found that institutions expect their private market exposure to rise from 19% of assets under management today to 23% within five years. Separately, Dynamo Software's fifth annual Limited Partner survey found that 63% of limited partners now plan to increase allocations to alternative investments over the coming year—the strongest reading in the survey's history.
The findings come at a time when AI is not only reshaping technology portfolios but also the entire framework through which advisors and their institutional clients assess risk, valuation, and capital concentration. For financial advisors working with institutional clients or high-net-worth individuals, the AI dilemma is no longer theoretical.
AI drives allocation shifts and portfolio anxiety
The Morningstar survey ranked the evolving generative AI landscape as the second most material global investment issue, cited by 71% of asset owners, trailing only rising inflation at 76%. Energy and supply chain disruption came third, cited by 66%—a figure Morningstar connects directly to AI's surging power demands. Nearly six in 10 asset owners said AI-driven energy demand could push up both energy costs and broader inflation, according to the Morningstar report. That concern is already influencing portfolio construction: AI-related environmental considerations more than doubled year-over-year, from 12% to 25% of respondents flagging it as a material factor.
"Asset owners are navigating a market increasingly shaped by artificial intelligence," said Lindsey Stewart, director of institutional insights at Morningstar, based in Chicago. "They are weighing innovation opportunities against higher valuations, sector and geographic concentration, environmental and social impacts, and governance concerns among leading AI companies." The compounding effect of AI valuations and capital expenditures topped the list of macro-market concerns for asset owners, cited by 73%. AI-driven market concentration risk followed at 65%, and overdependence on a handful of mega-cap technology providers was flagged by 63%. Together, those numbers describe a risk landscape that wealth managers counseling diversified portfolios will need to address directly with clients.
Private markets: from ambition to conviction
The Dynamo Software data tells a story of meaningful acceleration. While limited partner interest in alternatives has remained consistently elevated—55% planned to increase allocations in 2022, and 54% in 2025—the nine-point jump to 63% in 2026 represents the sharpest single-year move the survey has recorded. "The past few years have been characterized by rate uncertainty and repricing across asset classes, which understandably put LPs in a guarded posture," said Hank Boughner, chief executive officer of Dynamo Software, headquartered in Boston. "What we're seeing now is LPs much more confidently moving from caution to conviction, increasingly looking to alternatives not just for diversification, but as a bigger part of the return equation."
Reliance on fund managers rebounded sharply in 2026, after two consecutive years of decline. Seventy-eight percent of limited partners said they intend to access alternatives through fund managers, while plans for co-investments climbed to a multi-year high, with 64% planning to pursue this more direct route alongside existing fund relationships. Among the primary reasons asset owners cited for increasing private market exposure, Morningstar found diversification versus public markets leading at 56%, followed by higher expected returns at 42%, and access to specific themes—such as AI electrification and data transmission infrastructure—at 29%. Manager selection has emerged as the defining risk factor in alternative investments precisely because performance dispersion among managers is widening, making due diligence a more consequential exercise than it was even two years ago.
Liquidity risk remains the primary barrier. Sixty-three percent of asset owners in the Morningstar survey cited liquidity concerns as a constraint on private market investment, followed by transparency issues at 43% and limited data availability at 28%. These concerns are particularly relevant as private credit defaults hit a record 6.1%, though PGIM argues losses aren't inevitable.
North America reasserts its lead; Asia falls back
Geographic preferences are shifting. The Dynamo data shows North America regaining ground as the top destination for alternative capital, with more than half of limited partners planning to direct new commitments toward the U.S. and Canada, reversing a decline that had persisted since 2022. Europe held broadly steady as a second priority. Asia moved in the opposite direction, with LP intent falling from 23% in 2025 to just 12% in 2026, a sharp reversal that Dynamo attributes to greater selectivity among allocators around risk-adjusted returns by region.
For wealth management professionals advising clients on alternatives, that geographic recalibration matters, particularly as international diversification arguments need to be weighed against the concentration risk the Morningstar data flags for the U.S. technology sector specifically. Private credit dynamics in Europe and the United States are already diverging sharply in 2026, adding another dimension to geographic allocation decisions. As PE fundraising hits a record $312B in H1 2026 while exits lag, the pressure on managers to deliver returns is intensifying. Meanwhile, Great Gray and iCapital are teaming up to bring private markets CITs to 401(k) plans, potentially expanding access for retail investors. However, a recent survey found that 66% of Americans feel shut out of private investment opportunities, highlighting the ongoing access gap.
