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Varys presents 2026 capital‑market expectations: modestly higher growth, sticky inflation and manager selection risks in private markets
Summary
Ian Toner of Varys told the commission that GDP surprises to the upside and sticky but moderating inflation shape a constructive but cautious outlook; private‑market selection and liquidity remain key risks and Varys made only modest changes to long‑run return assumptions.
Ian Toner of Varys presented the firm’s 2026 capital‑market assumptions and a thematic '10 thoughts' outlook to the commission on March 5, emphasizing a directionally stronger GDP outlook and sticky but gradually moderating inflation.
Toner reviewed last year’s themes and said the team was broadly right to expect upside growth and tight credit spreads; he stressed the importance of thinking in probabilistic ranges rather than single point estimates. "When anyone is doing capital‑market assumptions what they're predicting is a range of outcome... the dots matter, and we'll be talking about the dots in a second," Toner said, describing white‑dot point estimates in the firm’s assumptions book and noting that reasonable outcomes around those points are wide.
Key themes flagged for 2026 included: a modest GDP upside versus consensus, persistence of sticky inflation (keeping interest rates ‘uninteresting’), possible immigration‑driven effects on rental markets, the long‑run impact of tariffs and onshoring, private‑market liquidity and manager‑selection risk (particularly in private credit), ambiguous near‑term productivity effects from AI, and a 'noisy but more peaceful' geopolitical backdrop.
On private markets, Toner warned that selection matters: poorly chosen private‑credit managers can produce bad loan decisions that cause losses, while top managers have outperformed. He described private market volatilities and explained the firm’s approach to estimating ranges for private equity and private credit returns: "Picking your private credit manager really matters — just like in private equity," he said.
Varys provided modest adjustments to long‑run return expectations (small changes to the 10‑year forecast) and reiterated that scenario ranges — not only point estimates — should guide policy and asset‑allocation choices.
The commission asked questions about housing, tariffs and private credit; Toner emphasized watching data and selection quality rather than making abrupt allocation changes.
Why it matters: the commission uses forward assumptions when modeling funded status and contribution paths; even small changes to long‑run return and volatility inputs can shift stochastic projections and policy choices.
Provenance: Varys presentation and Q&A (see presentation segments).
