Schroders’ 2027 outlook: a benign backdrop hiding wider dispersion

Schroders Group Chief Investment Officer Johanna Kyrklund and Nils Rode, CIO of private markets arm Schroders Capital, set out the main risks and opportunities for 2027 at the firm's Crystal Ball Investment Outlook media event. Their shared message is that the economic outlook looks calm, but underneath it valuations, sovereign debt and concentration are widening the gaps between assets. They see that as a setting that rewards selective, active investors.

Resilient growth, but a more complex market

Kyrklund expects global growth to stay resilient and inflation to keep easing in 2027. However, she warned that 'this seemingly benign big picture masks a more complex investment environment'. She said November's sharp volatility in AI and semiconductor stocks showed how exposed markets are, as investors questioned the assumptions behind the AI investment boom and the premium valuations of its biggest winners.

Higher for longer and the return of the bond vigilante

According to Kyrklund, 'the era of ultra-low interest rates is firmly behind us', and markets are getting used to a higher-for-longer environment. With fiscal deficits persisting and debt-servicing costs rising, she said investors can no longer assume governments will have unlimited room to borrow. 'The return of the "bond vigilante" will be a key consideration in 2027', she added, and fiscal credibility is likely to play a bigger part in separating one market from another.

Europe is already showing this. Political and fiscal uncertainty in France, including persistent deficits, higher debt costs and doubts over the 2027 budget, has led investors to reassess sovereign risk and has pushed the spread over German Bunds wider.

Equities: earnings still in the driving seat

Kyrklund does not think the more volatile backdrop calls for a wholesale retreat from risk. She said US equities are still supported by resilient corporate earnings and positive earnings revisions, 'although that conviction is increasingly conditional on earnings continuing to deliver'.

She also sees a case for diversification, with opportunities spreading beyond the handful of tech companies that have led markets. Schroders points to high-quality businesses trading at cheap valuations because investors fear disruption from AI. It also sees global miners and energy as a macro hedge, backed by structural scarcity as demand for copper from data centres and the energy transition is expected to outstrip supply.

Private markets: know your AI exposure

For Rode, resilience is still the watchword, but the risks are changing. He described AI as 'one of the most significant technological shifts in decades', with opportunities in infrastructure, energy and credit. He also warned that capital and valuations are increasingly concentrated, with 9 of the 11 companies valued at over USD 1tn now AI-related. He added that the data-centre build-out relies more and more on debt, and that expectations may be running ahead of the returns that can actually be achieved. 'In 2027, investors must look beyond asset-class labels and understand the nature of their AI exposure,' he said.

Rode noted that many private market segments are coming out of a long slowdown that followed the 2021 peak. That has partly separated them from highly valued listed markets and created healthier entry conditions, with early signs of recovery.

Where Schroders Capital sees opportunity

Schroders Capital favours segments away from where capital is most concentrated:

• Private equity: small and mid-sized buyouts, which trade at an average of 11.2x EBITDA at entry compared with 14.4x for large buyouts. It also likes continuation investments, a market it expects to grow from USD 109bn in 2025 to USD 332bn by 2035, plus selective early-stage venture and biotechnology.
• Private credit: asset-based finance and insurance-linked securities, as well as infrastructure debt. Infrastructure debt offers an average spread premium of around 240–300bps for sub-investment grade and 100bps for investment grade.
• Infrastructure: energy-transition assets, where core discount rates have risen by about 250bps since 2021, as well as grids, storage and flexibility.
• Real estate: needs-based sectors such as housing, urban logistics and storage, where limited new supply should support rental growth.

'Returns should come from operational value creation, collateral-backed income and structural demand, not from multiple expansion, falling rates or a single dominant theme,' Rode concluded.