At GIC Insights 2025, top economists and investors discussed the forces reshaping global markets and portfolio strategy. The discussion, held on 18 November 2025 and moderated by Liew Tzu Mi, Chief Investment Office, Fixed Income & Multi Asset, GIC, featured Marc Rowan, Co-Founder, CEO and Chair of the Board, Apollo Global Management, and Dr Mohammed A. El-Erian, Rene M. Kern Practice Professor, The Wharton School, University of Pennsylvania. This article presents the key takeaways from the discussion.

Note: In accordance with the Chatham House Rule, none of the insights reflect the views of or should be attributed to any single organisation or individual. Views expressed may not be shared by all panellists.

The sustainability of current asset prices

The panel opened by reflecting on the surprising resilience of asset prices in the face of persistent macro uncertainties. Despite widespread concerns over trade tensions, inflation, geoeconomics, and fiscal imbalances, several anticipated risks failed to materialise over the past year. Instead, companies’ ability to adapt quickly, the promise of artificial intelligence (AI)-driven productivity, and supportive policy conditions have underpinned robust market performance.

Long-term secular trends such as the energy transition and AI continue to shape investor sentiment. This was reflected in a poll of the 400 C-suite leaders in attendance, where infrastructure emerged as the asset class most likely to outperform over the next five to ten years. By contrast, public equities were favoured for near-term gains, highlighting confidence in the continued strength of technology stocks.

Audience sentiment also reflected cautious optimism for US markets. Over half of respondents expected US equities to deliver higher returns in 2026, while a third anticipated flat performance, and a minority foresaw declines. Similarly, most predicted that the 10-year US Treasury yield would be lower or unchanged by the end of 2026¹, suggesting expectations of easing rates and continued support for risk assets.

However, the outlook is not without challenges. High debt levels, elevated asset valuations, inflationary pressures, geopolitical tensions, and uneven productivity require vigilance—a concern echoed in a wordcloud, where “inflation”, “fiscal risk”, and “war” emerged as the top underappreciated risks for markets over the medium term.

Private credit: Misconceptions and risks

Transitioning from the macro context to specific market segments, the panel next explored the evolving landscape of private credit, highlighting the wide range of definitions used across the industry.

Additional complexity arises from the variety of buyers and sources of capital. Private credit may be held by a single lender or syndicated across multiple investors. Deals can originate from either the banking sector or the broader investment marketplace. The emergence of hybrid equity, blending features of private lending and public credit, further blurs traditional asset class boundaries. Such instruments may not fit neatly into conventional buckets but were identified by the panel as a promising area of opportunity.

With regards to risks, the panel distinguished between idiosyncratic credit events and broader systemic threats. Over-lending and weaker underwriting standards have led to isolated defaults (“cockroaches”), but these were not seen as undermining the foundations of the financial system (“termites”). While defaults and restructurings are expected as part of the credit cycle, the risk of a systemic crisis on the scale of 2008 was considered remote by the panellists.

Private equity under duress

The panel observed that recent underperformance in private equity reflects a shift away from traditional value creation, accentuated by the last decades’ rush of capital into the asset class. Historically, private equity strategies emphasised adding value at entry and exit, often through operational improvements and prudent use of leverage in a low interest-rate environment.

In recent years, however, some investors have relied on the assumption that favourable financing conditions would persist, leading to higher purchase prices and increased leverage without corresponding value-add. As interest rates have risen, these assumptions have been challenged, with refinancing pressures mounting and a greater share of returns accruing to debt holders rather than equity holders.

Fiscal risk in focus

Fiscal deficits, sovereign debt, and large bond issuance remain key concerns, with the panel noting that markets may be underestimating the likelihood of repricing. Central banks face significant constraints in supporting growth under current macroeconomic conditions, which could heighten concerns around sovereign creditworthiness. The panellists suggested that a shift from relative to absolute risk pricing—where investors focus less on spreads and more on absolute compensation for risk—could prompt sharp adjustments in yields, as witnessed recently in the UK and France. Such episodes are seen more as matters of repricing rather than outright default risk.

Global concentration in US sovereign assets, with the US often described as the “cleanest dirty shirt”, has supported demand for US Treasuries. However, the panel cautioned that a significant reduction in global overweight positions could lead to higher interest rates, a weaker US dollar, and broader market instability, particularly if the global financial system became more fragmented. Similar fiscal and repricing risks are present, to varying degrees, in other major economies.

The rational AI bubble

Turning to technology, the panel highlighted AI’s transformative potential across industries, but cautioned that current enthusiasm comes with risks. First, the rapid diffusion of AI into the economy, the key to productivity gains, requires significant retraining and policy support—not only for those developing AI, but also for those expected to work with it or whose roles may be affected. Second, the risk posed by bad actors remains insufficiently addressed. Third, prevailing mindsets often equate AI adoption with cost minimisation and labour displacement, rather than labour enhancement. If AI is seen primarily as a tool for reducing headcount, it could provoke societal backlash.

Finally, the panel described the current environment as a ‘rational bubble’—where the incentives to invest are strong and widespread over-investment is likely, but the potential for adverse consequences should not be underestimated. Managing these risks will be as important as capturing the rewards.

A total portfolio approach to asset allocation

In response to these evolving risks and opportunities, the panel called for a fundamental rethink of risk and return. Traditional asset classes may no longer deliver the same returns, volatility, and risk attributes as in the past, prompting investors to seek opportunities in less conventional areas. The growth of private credit, for example, reflects a willingness to explore new and untested market segments.

This shift is reinforced by the gradual convergence of asset classes. Whereas equities were once synonymous with broad market indices, today’s indices increasingly incorporate a diverse mix of exposures. The boundaries between public and private markets are blurring, with mutual funds and exchange-traded funds (ETFs) expected to integrate private assets over time.

Adaptive thinking and defensive positioning

Amid persistent macro and micro risks, the panel advised investors to move beyond fixed assumptions and embrace adaptive thinking to better manage uncertainty. They recommended adopting a more defensive positioning to prepare for potential market corrections. Firms that adapt their strategies and cultures to these realities are more likely to benefit from the ongoing transformation of markets.