What’s Ahead for Private Equity in 2026: Key Trends in Exits, Dry Powder & Valuations

The recent outlook for private equity heading into 2026 is one of ginger optimism constrained by underlying structural challenges. While deal activity and exits have improved over 2025—especially for top‐tier managers and high-quality assets—large portions of PE portfolios remain exposed to elevated holding periods, valuation mismatches, and difficulty in generating liquidity for investors.

Pile-up of unsold assets and aged investments. One key symptom is that by late September 2025, U.S. PE firms had 12,900 companies still held, up modestly from the end of 2024 [1]. Median holding periods remain close to seven years, well above the pre-pandemic 5-5.5 year norm. Such aging of investments heightens the risk of underperformance and erodes LP patience [2][5].

Dry powder waning but still heavy. Undeployed capital in U.S. PE dipped to about US$880 billion by September 2025, down from US$1.3 trillion in December 2024 [1]. Globally, dry powder had also been declining from its 2023 peak of roughly US$2.7 trillion to about US$2.2–2.5 trillion by mid-2025 [3][4]. The amount remains large, but much of it is aging and becoming a drag on fundraising and performance [4].

Exit environment improving—but unevenly. Exit value has risen sharply: U.S. exits in 2025 have surpassed 2024 levels, totaling about US$472 billion vs US$377 billion [5]. IPOs, though, remain selective and investors focus on the best assets. Meanwhile, sectors with complex financing requirements—such as telecoms, media and industrials—are holding onto assets longer [2].

Adaptive strategies and LP pressure. Continuation vehicles and secondary transactions are being increasingly used to unlock liquidity without fully exiting assets [1][3]. LP sentiment is pushing GPs to prioritize actual value creation, sector specialization, and disciplined sourcing. At the same time, fundraising for new commingled funds remains soft: U.S. fundraising is well below year-earlier levels, with smaller and mid-tier managers particularly challenged [4].

Strategic implications for 2026. If macro signals—interest rates, inflation, regulatory pressures—cooperate, we should expect increased exit activity, but changewill likely be concentrated in sectors with defensible earnings, reliable cash flows, and lower capex/leverage needs. Firms that rely heavily on complex LBO models, high financial leverage, or late-stage exit via IPOs will face more headwinds. LPs will increasingly differentiate between top performing GPs vs the rest, leading to consolidation in fund-raising and ownership of deal pipelines.

Open questions. Can the IPO market rebound sufficiently to provide scale exits? How will interest rate policy evolve—will rate cuts arrive soon enough to ease cost of capital? What will happen to lower-tier or distressed PE assets—will they require write-downs or clever structuring to exit? And how will LP expectations for returns and liquidity shape GP behaviors?