Weekly Briefing: Market Volatility, Defensive Fund Flows, Private Capital Expansion and SME Lending Support

This week’s stories sit in the middle of erratic market conditions. From sharp repricing across crypto and tech markets to clear evidence of investors rotating into lower-risk assets, sentiment remains fragile but far from disengaged.

Alongside this, private markets continue to scale in targeted ways, while lenders look for practical mechanisms to support high-quality borrowers.

Together, these developments offer a useful snapshot of the investment and economic landscape around us.

Read on for the full context.

Crypto, Commodities and Equities Under Pressure

Assets faced a difficult week as confidence weakened across crypto, precious metals and technology-heavy equities. Bitcoin briefly fell below $61,000 on Thursday, touching $60,062 during overnight trading, and was down nearly 30% over the week. The move marked a sharp reversal from its October peak above $126,000 and brought prices closer to pre-election levels.

The sell-off reflects a broader reassessment of bitcoin’s role as a hedge. Long promoted as “digital gold”, the asset has largely traded in line with risk-on markets during recent geopolitical flare-ups in the Middle East, Europe and Venezuela, undermining its perceived defensive qualities. Over the past year, bitcoin is down nearly 40%, while gold futures have risen 61% over the same period.

Institutional behaviour appears to be a key driver. Deutsche Bank analyst Marion Laboure noted that “traditional investors are losing interest, and overall pessimism about crypto is growing”, while CryptoQuant data shows US-listed bitcoin ETFs have shifted from net buyers to net sellers in 2026. Bitcoin has also broken below its 365-day moving average for the first time since March 2022, a technical signal that has historically coincided with extended drawdowns.

Other digital assets followed suit. Ether fell more than 30% over the week, Solana dropped to a two-year low, and more than $2 billion of crypto positions were forcibly liquidated, according to Coinglass. As Maja Vujinovic of FG Nexus put it, “Bitcoin isn’t trading on hype anymore… it is trading on pure liquidity and capital flows.”

Traditional markets offered little shelter. US equities declined again as the S&P 500 fell 1.2%, the Nasdaq dropped 1.5% and the Dow lost more than 500 points, driven largely by a deepening tech sell-off. Concerns around AI-driven disruption to established software firms, alongside heavy capital spending by companies such as Alphabet, have weighed particularly on software stocks, many of which are now experiencing double-digit daily losses.

Headline indices remain relatively resilient, a testament to diversification, even with nearly 40% of the S&P 500 concentrated in just seven companies. Beneath the surface, however, smaller-cap and sector-specific losses point to a market increasingly selective about where it allocates risk.

Investors Rotate Toward Safety and Liquidity

That caution is clearly reflected in retail fund flows. Investment Association data shows UK retail funds recorded net outflows of £2.3 billion in 2025, matching the previous year, although the pace of withdrawals eased toward year-end following £2.0 billion of inflows in December. The pattern marks a decade of consistent outflows from UK equity funds.

Equity strategies bore the brunt of the retrenchment, with £16.8 billion withdrawn over the year. Global and North American equity funds, many with significant exposure to large-cap US tech stocks, saw combined outflows of nearly £7 billion, reflecting growing unease around elevated AI-driven valuations. European equity funds were a modest exception, attracting £761 million of inflows.

UK equity funds continued to struggle despite strong market performance, including record highs for the FTSE 100. Outflows totalled £11.1 billion, their best result since 2021 but still significant. AJ Bell’s Laith Khalaf noted that overseas buyers, rather than domestic fund investors, were likely behind much of the market’s strength, reinforcing a structural shift away from UK equity funds.

In contrast, money market and mixed asset funds proved highly attractive. Money market funds alone drew £6.9 billion of inflows, with short-term money market strategies leading the way. According to the IA, these vehicles offered a liquid, defensive option as investors waited to see how markets would respond to tariffs, geopolitics and shifting monetary policy.

Tracker funds attracted £12.8 billion in 2025, while active funds saw £15.1 billion of outflows, albeit an improvement on 2024. Khalaf highlighted that only 24% of active managers have beaten passive alternatives over the past decade, making index tracking both a lower-cost and lower-career-risk choice for advisers and pension managers.

Looking ahead, IA director Miranda Seath suggested that diversified, lower-risk allocations are likely to remain in demand into 2026, as uncertainty persists.

KKR Deepens Its Push Into Sports and Secondaries

While public markets wrestled with volatility, private capital continued to scale selectively. KKR announced a definitive agreement to acquire Arctos Partners in a transaction valued at $1.4 billion in initial consideration, with up to a further $550 million linked to future performance and share price targets. The deal is expected to be immediately accretive to KKR’s earnings.

Founded in 2019, Arctos is the largest institutional investor in professional sports franchise stakes and manages approximately $15 billion in assets. The firm operates across sports investing and GP solutions, providing structured capital to franchises and alternative asset managers seeking growth or liquidity.

Strategically, the acquisition strengthens KKR’s exposure to long-duration, less correlated assets. Sports franchise stakes have historically demonstrated long-term value appreciation, supported by scarcity and global demand, while Arctos’ Keystone platform positions KKR more deeply within the fast-growing GP solutions and fund finance market.

The transaction also provides a platform for expansion in secondaries. The private equity secondaries market recorded approximately $226 billion of activity in 2025, up 41% year-on-year, and Arctos’ leadership in this space offers KKR a clear path to scale a multi-asset solutions business.

KKR co-CEOs Joe Bae and Scott Nuttall described Arctos as a “distinctive and scaled platform” with strong cultural alignment. Upon completion, Arctos’ founders Ian Charles and Doc O’Connor will join KKR as partners, with Charles leading a newly formed KKR Solutions business.

As Bae and Nuttall noted, “With the team’s track record and history of innovation, we know Arctos is the right partner to help us build a leading franchise across sports, GP solutions and secondaries.”

Atom Bank Targets High-Quality SME Borrowers

At the lending end of the market, Atom bank introduced a targeted pricing incentive aimed at financially resilient borrowers. The bank is now offering a 0.25% discount on commercial mortgage rates for cases demonstrating a debt service coverage ratio of 200% for trading businesses, or an interest coverage ratio of 200% for commercial investments.

The discount applies immediately to new applications and is designed to reward strong cash flow discipline. It follows a series of changes introduced over the past year, including simplified stressed interest rates and enhancements to the Growth Guarantee Scheme, all aimed at improving access to funding for SMEs.

Atom has also linked pricing to sustainability through its Better Buildings incentive, which offers up to a 0.25% discount for energy-efficient properties. While the two discounts cannot be combined, borrowers can access the higher of the two where eligible.

According to Tom Renwick, head of business lending at Atom bank, the new pricing “recognises the financial discipline demonstrated by SMEs with strong debt service coverage and investors with prudent interest coverage ratios”. He added that the bank’s commercial lending team saw record activity last year, supported by improvements to criteria and broker systems.

The move reflects a broader theme seen across this week’s stories - a willingness to support growth, but on terms that prioritise resilience, transparency and quality as businesses look ahead to 2026.

Final Note

Across markets, funds, private capital and lending, the common thread this week is selectivity. Risk appetite has narrowed rather than disappeared, with capital increasingly directed toward assets, structures and borrowers able to demonstrate durability in uncertain conditions.

In that environment, areas where confidence has retrenched most sharply may begin to attract renewed attention from investors willing to take a longer-term view.