This article is sponsored by Bain & Co
Private equity deal value has rebounded of late. How would you characterise the state of the market as we head into 2026?
Deal value rallied strongly through the second half of 2025, signalling that the fear of real macroeconomic instability had receded. Corporations and PE firms had the confidence to do deals again, but the recovery was uneven. Activity was driven by huge deals over $10 billion in size; in short, then, deal value was up, but deal count was down.
At the start of 2026, the expectation was that more deals would be done – but as was the case last year, macroeconomic and trade issues have cropped up again. That causes uncertainty, and uncertainty makes it very difficult for GPs to pencil out five-year leveraged cashflow models with conviction, so they tend to back off doing deals.
Hopefully the macro chatter quiets down the way it did in 2025, and we continue to see a more robust recovery in 2026 – both in the number and value of deals done.
Many industry stakeholders believe PE stands at an inflection point. What has fundamentally changed?
During the decade from 2011 to 2021, central bank interest rates were effectively sitting at zero, there was an abundance of cheap debt, and in most markets there was steady GDP growth and constant multiple expansion. It was about as benign a set of circumstances as the industry could possibly have.
The problem was that folks assumed this golden period was normal. Then we had a global pandemic, rising inflation and rapid central bank interest rate increases. The tailwinds that drove the industry through the golden decade faded.
What that period masked was the maturation of the industry. Buyouts is now a $5 trillion industry that’s three times as big as it was 10 years ago. Competition is intense, asset prices are high and interest rates are real.
What does this imply for how GPs source, underwrite and create value today?
We have come up with a rule of thumb – “12 is the new five” – to articulate the implications for GPs.
If you look at the entry price, capital structure and exit valuation for a typical deal during PE’s golden decade, a GP could expect to grow a portfolio company’s EBITDA by about 5 percent each year and achieve a 20 percent IRR. In today’s circumstances, looking across all those variables, you will have to grow EBITDA by 12 percent to deliver the same IRR. Only around a third of PE-backed businesses typically achieve that.
What this means is that GPs have to develop a real strategy to source, underwrite and generate higher EBITDA growth if they are to deliver the same level of return. There are only two levers that GPs and management teams have available to create that value: margin expansion or really delivering operating leverage to grow businesses quickly. GPs that don’t have a plan in place to pull those levers will have to develop one quickly.
What role will continuation vehicles, secondaries and other liquidity solutions play in this new environment?
The need for more secondaries in private markets is writ large. We have come off a record year for secondaries, with transactions worth more than $200 billion. That sounds like a really big number, but it is a fraction of the over $20 trillion private asset industry. The amount of liquidity in this market is still woefully inadequate, and that is fuelling opportunity and innovation in the secondaries space.
CVs are a very specific secondaries product that have provided liquidity for buyouts. There will always be room for CVs, because if a GP has held an asset for a long time and knows there is more growth to go, it is much easier to underwrite a known and trusted business than trying to find a new platform.
The challenge is that not every business has the duration risk profile to suit a CV deal; you really have to peel the layers of the onion to assess the fit. The CV is a valuable tool that is not going anywhere, but at the same time it is not the answer to all the industry’s liquidity problems.
Fundraising dynamics have clearly shifted. How do you see the fundraising environment evolving in the coming years?
The distributed-to-paid-in ratio for the industry is still way below where it should be. We have had four straight years where capital returned as a percentage of NAV is less than 15 percent. That’s unprecedented in the industry’s history, even during the global financial crisis.
LPs are not clear on what returns they will see when all of this money does start to flow back, because we have had a pandemic, an inflation spike, an interest rate spike and tariffs. It is hard to see fundraising getting much stronger before distributions accelerate and there is more visibility on performance. Managers returning cash at good returns will have no problem fundraising, but fundraising will be challenging for those managers who are not in that bucket.
Looking beyond the short-term fundraising challenges, during the next 10 years more capital will start to flow into PE from sources other than traditional institutional investors. The private wealth category represents half of total global wealth, but it has almost no exposure to private assets. The market realises this and is moving towards penetrating the private wealth market at greater speed. We’ll see how fast it goes, but there are already conversations around retirement assets in the US moving into private markets, and we see traditional asset managers getting into the asset class too. Even if you tap into private wealth at very low percentages, it’s trillions of dollars coming into the industry.
What this means for GPs is that fundraising is going to become a more complex, expensive exercise. There is more competition for commitments from traditional institutional sources of capital, and you also have to secure small cheques from individuals. GPs will require a certain operational scale and sophistication to do that.
Some firms are opting to scale across asset classes. How should GPs think about choosing the right strategic path?
The reality is that not all firms have the scale to become multi-asset class players. For the majority of GPs, the question should be how to deliver differentiated alpha. That boils down to developing a playbook where the GP has a focused strategy and a model to deliver repeatable returns that LPs can have confidence in.
