Schroders: Investment leaders identify 2027’s key risks and opportunities
Johanna Kyrklund, Group CIO for Schroders Group, and Nils Rode, CIO for Schroders Capital, the firm’s private markets business, identified 2027’s investment risks and opportunities during Schroders’ Crystal Ball Investment Outlook media event.
Johanna Kyrklund said:
'Investors enter 2027 against a relatively benign economic backdrop, with global growth expected to remain resilient and inflation to continue moderating. But this seemingly benign big picture masks a more complex investment environment.
November’s sharp volatility in AI and semiconductor stocks underlined that vulnerability, as investors reassessed the assumptions underpinning the AI investment boom and the premium valuations attached to some of its biggest beneficiaries.
The era of ultra-low interest rates is firmly behind us. Markets are increasingly adjusting to a higher-for-longer environment,while persistent fiscal deficits and rising debt-servicing costs mean investors can no longer assume governments will be given unlimited room to borrow. The return of the “bond vigilante” will be a key consideration in 2027, with fiscal credibility likely to play a greater role in differentiating markets.
That is already evident in Europe, where political and fiscal uncertainty in France has led investors to reassess sovereign risk. For public market investors, the implication is that the macro environment may be benign, but the dispersion underneath it is increasing, creating both risks and opportunities in the year ahead for active investors.
Having said that, the more volatile backdrop does not necessarily warrant a wholesale retreat from risk. US equities remain supported by resilient corporate earnings and positive earnings revisions, although that conviction is increasingly conditional on earnings continuing to deliver. Recent volatility also reinforces the case for diversification, with opportunities potentially broadening beyond the handful of technology companies that have led markets in recent years.'
Nils Rode said:
'Resilience remains the key watch word for investors, but the risks shaping 2027 are different.
AI is one of the most significant technological shifts in decades, creating opportunities across infrastructure, energy and credit. But capital and valuations are increasingly concentrated, the data-centre build-out is becoming more debt-financed, and expectations may be running ahead of realisable returns. In 2027, investors must look beyond asset-class labels and understand the nature of their AI exposure.
Many private market segments are at a different stage of the cycle to other asset classes. Many segments are emerging from a prolonged slowdown since the 2021 peak. This has partially decoupled them from highly valued listed markets and created healthier entry conditions, with early signs of recovery emerging.
This means private markets in 2027 could offer differentiated return drivers, such as operational improvement, contracted or regulated revenues, collateral-based lending and insured catastrophe risk. These differ from the drivers that dominate listed equities, but diversification depends on the underlying exposures rather than the label.
Opportunities are not uniform and performance dispersion can be wide. In 2027, we favour segments outside the areas where capital is most concentrated. In private equity, that means small and mid-sized buyouts and continuation investments, alongside selective early-stage venture and biotechnology. In private credit, it means asset-based finance, infrastructure debt and insurance-linked securities. We also favour energy transition infrastructure and needs-based real estate.
Returns should come from operational value creation, collateral-backed income and structural demand, not from multiple expansion, falling rates or a single dominant theme.
As we look to 2027, combining these segments while considering healthy entry pricing alongside rigorous selection could ensure private markets are well positioned to contribute to diversified, resilient portfolios.'
