Private Equity Outlook 2026: Gaining Traction

Private Equity in 2025: Building Momentum

After three years in the relative doldrums, private equity finally started to build meaningful momentum in 2025. The gains were mixed and propelled by a narrow swath of headline transactions, but the industry’s recovery appears to be gaining traction as more general partners shake off economic uncertainty and valuation qualms to put money to work and accelerate distributions to investors.

According to Bain & Company’s 2026 Global Private Equity Report, total deal and exit values were the second-best in the industry’s history, not far behind private equity’s all-time zenith year in 2021. Dealmakers managed to find a way around tariff shocks in the spring, persistent geopolitical turmoil throughout the year, and lingering uncertainty about interest rates and economic growth.

Yet beneath the impressive headline numbers, significant structural challenges remain. The activity was concentrated in a handful of massive transactions and did not contribute substantially to solving some of the buyout industry’s most stubborn problems—at least not yet. For investors and analysts tracking these complex dynamics, interactive analysis tools help transform dense PE data into actionable insights.

Record PE Deal Value Driven by Megadeals

Private equity investments climbed sharply in 2025, with total deal value reaching $904 billion—a 44% increase over 2024 and the second-highest year in industry history. However, the number of deals actually fell 6% year-over-year to 3,018 transactions, pushing the average disclosed deal size to an all-time record of $1.2 billion.

The surge in deal value was overwhelmingly driven by a handful of truly massive public-to-private transactions. The $56.6 billion take-private of Electronic Arts set a new record as the largest buyout in history. Other headline-grabbing megadeals included Aligned Data Centers at $40 billion, Air Lease at $27.5 billion, and Walgreens Boots Alliance at $23.7 billion. These 13 megadeals in the $10-billion-plus bracket alone accounted for $274 billion of the global gain in 2025.

Critically, these megadeals punched well below their weight in terms of drawing down the industry’s growing mountain of unspent capital. In many of these transactions, the bulk of equity came from external sources—massive direct investments by sovereign wealth funds and large corporations—rather than buyout fund capital. For instance, Saudi Arabia’s Public Investment Fund reportedly will own more than 90% of the Electronic Arts equity, with co-investors Silver Lake and Affinity Partners contributing only a few billion in capital.

The Persistent Liquidity Challenge for LPs

While the surge in exit value is certainly welcome, the private equity industry’s persistent liquidity conundrum remains far from resolved. Distributions as a percentage of net asset value have now held below 15% for four consecutive years—an unprecedented streak that has tested the patience of limited partners across the institutional investor landscape.

The scale of the challenge is stark: the industry is sitting on approximately 32,000 unsold companies worth an estimated $3.8 trillion. With the average holding period for assets at exit floating around seven years, many GPs appear to be holding assets longer in order to buy time for strategies to increase EBITDA. An analysis of returns from 15 years of buyout vintages shows that internal rate of return starts to stagnate around year seven and declines after that, suggesting that extended holding periods erode rather than enhance returns.

The growing popularity of liquidity mechanisms such as continuation vehicles can ease some of the pressure GPs feel to monetize assets that are not ready for prime time. These structures, which allow GPs to transfer assets from mature funds into new vehicles while providing liquidity options for existing LPs, now account for less than 10% of exit value. While helpful as a partial fix, they are not a long-term solution to the industry’s structural liquidity challenges. Research from the International Monetary Fund’s Global Financial Stability Report provides broader context on private market liquidity dynamics.

Fund-Raising Remains Selective and Challenging

Where the industry’s structural issues come home to roost is fund-raising, which remained challenging for the majority of funds in 2025. The bifurcation between top-performing and average managers has never been more pronounced, creating a two-tier market that rewards excellence and penalizes mediocrity with increasing severity.

Within buyout, there were clear winners. The funds closing fastest tended to be established managers with a history of both top-tier investment returns and strong distributions to paid-in capital (DPI). These managers, having demonstrated the ability to generate returns and return capital on schedule, found eager LP demand and efficient fund-raising processes. For the broader universe of buyout funds, however, closing a new fund in 2025 continued to be a slow and difficult slog.

This dynamic highlights a fundamental shift in the LP-GP relationship. Limited partners are more demanding than ever, focusing on funds that demonstrate a clear, repeatable, and easily explained strategy for producing top-tier results and returning capital on time. The era of passive allocation to the private equity asset class is giving way to a more discriminating approach where LPs are willing to concentrate commitments among fewer, higher-conviction managers.

Tariff Shocks and the Dealmaking Recovery

The year 2025 started with considerable optimism as dealmaking had gained steam in 2024 and GPs were eager to deploy their arsenal of dry powder. Credit markets were open, interest rates were trending downward, and inflation appeared under control. Then April’s “Liberation Day” sparked turmoil over US tariff policy, creating immediate uncertainty across the dealmaking landscape.

The impact on activity was swift but ultimately temporary. Deal count and value both declined sharply in the second quarter as buyers and sellers paused to assess the implications of new trade barriers on portfolio companies and prospective targets. However, the market regained its footing remarkably quickly, with value soaring in the third and fourth quarters as deal pipelines that had been put on hold were reactivated.

The resilience of the recovery reflects a broader industry dynamic: GPs are increasingly unwilling to remain on the sidelines given the pressure to deploy capital and return distributions to LPs. While macroeconomic uncertainty remains a persistent background concern, the urgency to put money to work has created a powerful counterbalancing force. Insights from World Bank economic research provide additional macroeconomic context for understanding PE dealmaking environments.

Regional PE Activity and Sector Trends

North America dominated global PE activity in 2025, accounting for 80% of the growth in deal value, largely due to the concentration of megadeals in US markets. Eleven of the 13 deals exceeding $10 billion targeted US companies, reflecting the depth and scale of American capital markets. However, when excluding the megadeal segment, Europe’s contribution to growth was comparable, demonstrating healthy underlying activity across the Atlantic.

Deal value grew across most sectors, with public-to-private transactions representing roughly half of total value growth. GPs and their sovereign wealth fund or corporate investing partners took advantage of an improved financing environment for M&A in the US and the opportunity to revamp companies out of the public eye. Technology, healthcare, and financial services attracted the most capital, with AI-related capabilities serving as a common thread across sector-specific deal theses.

Below the megadeal threshold, the recovery picture was more representative of the traditional buyout segment’s condition. Excluding the $10-billion-plus segment, deal value grew a solid 16% year-over-year, with transactions in the $1 billion to $5 billion range growing 29%. This mid-market activity, driven by operational improvement opportunities and sector consolidation plays, represents the bread-and-butter of private equity dealmaking. For professionals analyzing these sector dynamics, Libertify’s interactive reports enable deeper exploration of regional and sectoral PE trends.

Dry Powder Pressure and Capital Deployment

Global buyout dry powder sits at a towering $1.3 trillion, with the majority of capital raised in 2022 and 2023 fund vintages now well past the point where deployment pressure intensifies. This mountain of committed but undeployed capital exerts enormous pressure on GPs to find attractive investment opportunities, even as asset valuations remain stubbornly high and the basis of competition for quality assets continues to intensify.

The composition of capital available for deals has evolved significantly. For the largest funds, scale transactions are critical to deploying meaningful amounts of capital efficiently. Yet buyout dry powder is no longer the only capital competing for deals. Large GPs are both competing and partnering with sovereign wealth funds, pension funds, and corporate buyers who bring their own capital to the table. When accounting for these non-buyout capital sources, the total money chasing deals is unprecedented, which paradoxically cuts into traditional private equity’s share of the action even as overall deal value grows.

This competitive dynamic has important implications for deal pricing and return expectations. With more capital pursuing fewer high-quality assets, entry multiples have remained elevated despite rising interest rates. GPs can no longer rely on multiple expansion as a primary return driver and must instead focus on operational value creation—specifically, rapid and sustainable EBITDA growth—to generate the returns that LPs demand.

The EBITDA Growth Imperative for GPs

The private equity industry has reached an inflection point—a level of maturity that eventually comes to any business, where the basis of competition intensifies and customers demand a much higher degree of excellence. For PE firms, this means the path to top-quartile returns increasingly runs through one capability: the ability to rapidly generate strong EBITDA growth at portfolio companies.

The tailwinds that propelled the broad industry forward in the wake of the global financial crisis—rock-bottom interest rates, steadily rising multiples, and easier access to LP capital—are largely gone. The baseline now features higher rates, stubbornly high entry valuations, slower exit timelines, and much choosier investors. In this environment, the firms that can demonstrably and repeatably drive operational improvement across their portfolios will separate themselves from the pack.

The cost of doing business is also rising as the best firms build deep competitive moats through scale, specialized sector expertise, proprietary technology platforms, and professionalized fund-raising organizations. This increasing cost of excellence means that the gap between top-performing and average managers is likely to continue widening, reinforcing the fund-raising bifurcation that has become the industry’s defining structural feature. Analysis from McKinsey’s Private Equity practice corroborates the growing emphasis on operational value creation as the primary return driver.

Private Equity Outlook: Why 2026 Looks Promising

The good news for the industry is that 2026 is shaping up as a promising year. While black swan events have arrived in flocks over recent years, making forecasts especially perilous, the conditions supporting more deal and exit activity appear to be genuinely improving across multiple dimensions.

Interest rates are moving south, albeit slowly, reducing the cost of leveraged acquisitions and improving deal math for buyout transactions. Deal pipelines are well-stocked after years of limited activity. The blockbuster Medline initial public offering in December—the largest PE-backed IPO ever and the largest IPO in four years—appears to be just the first in a more robust public offering market. With stock prices high and the economy robust, the boom in corporate M&A that supported exit value in 2025 shows no sign of abating.

The improving environment is boosting GPs’ confidence that exit momentum will build throughout 2026. If history is any guide, private equity will find a new path to growth and strong returns—it always does. This period has presented a series of unique challenges, from pandemic disruption to rate shock to geopolitical fragmentation. But there is no reason to believe we are not already on the upswing. Explore more expert analysis in our interactive library of industry reports. The firms best positioned to capture this opportunity will be those that have invested in operational capabilities, built strong LP relationships through consistent distributions, and maintained disciplined approaches to valuation and capital deployment throughout the challenging years.