Private Capital Shifts Focus to Heavy Assets as Software Investments Slow

Private equity firms are moving away from software and tech startups, turning instead toward heavy assets like sports franchises and infrastructure. This shift comes amid growing market volatility and changing investor appetite.

Markets Flicker, Investors Rethink Strategies

Financial markets started 2026 with calm, but that quickly changed. Tensions between the US and Europe over Greenland and snap elections in Japan rattled equities and bonds. US stocks dropped sharply, erasing gains made earlier in the year. Meanwhile, Japanese government bond yields soared past 4%, a level not seen in decades. The US dollar weakened when it usually would strengthen during turmoil, and Treasury yields climbed to 4.3%. These moves fueled doubts about traditional safe havens.

Amid this turbulence, investors are reconsidering where to put their money. Leverage is back in the spotlight, with retail traders and hedge funds piling on debt to boost returns. Margin debt in the US hit $1.2 trillion by late 2025, while leveraged ETFs have added another $250 billion. Hedge funds have pushed their leverage ratios to eight times net asset value, the highest since data collection began in 2013. The risk? Margin calls and forced asset sales could amplify swings in an already shaky market.

From Software to Sports: A Changing Private Equity Playbook

Private equity giants are shifting gears. The tech boom that dominated the past decade has shown signs of plateauing, making heavy assets more attractive again. Take KKR, one of the largest global investment firms. It’s in talks to buy a majority stake in Arctos Partners, a company holding minority stakes in about 20 professional sports teams across the NBA, NFL, NHL, and MLB.

Arctos’ portfolio includes partial ownership in teams like the Golden State Warriors, Buffalo Bills, and Los Angeles Dodgers. It also holds interests in soccer clubs Liverpool and Paris Saint-Germain.

The move would give KKR a foothold in an asset class known for prestige and steady cash flows, even if these stakes are passive and come with league restrictions on sales and control.

Sports investments have become a rare blend of stability and growth potential. But liquidity challenges remain due to limited buyers and regulatory hurdles. That makes a deal with a heavyweight like KKR appealing for Arctos, especially as some of its founders look toward new career phases.

Public Pensions Double Down on Private Equity

It’s not just private firms chasing alternative assets. Public pensions continue to pour money into private equity, aiming for oversized returns to meet long-term obligations. The California Public Employees’ Retirement System (CalPERS), the nation’s largest pension fund, has boosted its private equity allocation to nearly 18% of its portfolio. CalPERS CEO Marcie Frost told the Financial Times that private equity is a class they trust to outperform public markets over time.

The New York State Common Retirement Fund has also ramped up commitments, putting more than $1.4 billion into private equity this year alone—nearly half of its new $3.1 billion commitments. These moves reflect confidence in private equity’s ability to deliver strong, reliable returns despite market ups and downs.

Vermont’s pension fund, which topped performance charts for private equity investments, says its success has strengthened the financial footing of thousands of state employees and teachers. These funds see private equity as essential to balancing risk and reward in a low-yield environment.

What It Means for Investors

The pivot toward heavy assets like sports franchises signals a broader trend. Software startups, while still innovative, face growing headwinds—rising interest rates, market saturation, and tougher funding conditions. Meanwhile, tangible assets backed by steady cash flows appeal to investors hungry for stability and growth.

But this shift isn’t without risks. Sports investments depend on league rules and fan engagement. Private equity allocations tie up capital in less liquid vehicles, potentially limiting flexibility during market stress. And rising leverage across financial markets could amplify shocks if volatility persists.

Still, many investors welcome this diversification. It spreads risk across sectors and asset types, a strategy that can help weather unpredictable markets. As public and private investors increase allocations to private equity and alternative heavy assets, the investment landscape continues to evolve rapidly.

KKR’s potential deal with Arctos and hefty pension commitments show heavy assets are no longer niche plays. They’re central to how private capital is positioning itself amid shifting market dynamics and fading software hype.