Private Equity in 2026: Dry Powder, Congestion & Valuation Pressures Ahead

The private equity (PE) sector is entering 2026 at an inflection point. On one hand, deal flow and exit activity have shown encouraging signs through 2025. On the other hand, structural challenges—particularly around portfolio congestion, valuation mismatches, and liquidity—pose real constraints on returns and fundraising.

Portfolio congestion and extended hold periods: With nearly 12,900 U.S.-based assets still held unsold as of September 2025—a slight increase from the end of 2024—PE firms face mounting pressure to clear their shelves. The average hold period has edged down from its 2023 peak but remains around seven years, well above pre-pandemic averages and indicative of assets bought during the boom years that are now difficult to unload without losses. [1]

Dry powder and capital deployment dynamics: While U.S. dry powder sits at $880 billion, this is down significantly from the high of $1.3 trillion in late 2024. Globally, dry powder—while still elevated compared to pre-2022 levels—showcases signs of aging, with a large slice raised four or more years ago. Such aging capital raises questions around deployment expectations and return horizons. [1][5]

Exit trajectory: gains but unmet expectations: Several headline exits—Medline’s IPO and the Ampere Computing sale to SoftBank—underscore recovery in exit channels. Global exit or IPO value rose more than 40 percent in 2025 versus prior year baseline. Yet many LPs remain dissatisfied: distributions haven’t kept pace, delayed exits mean cash remains locked up, and carry fees suffer under the weight of inflated buy-prices. [1][2]

Strategic implications and risks entering 2026: Given this environment, PE firms will need to be selective in deploying capital—favoring assets with defensible valuations, operational strength, or alignment with sectors seeing robust IPO or M&A tailwinds (e.g. AI, tech-enabled businesses). LPs may press for better governance, more realistic pricing, and more frequent or flexible exit mechanisms (secondary markets, continuation vehicles). Regulatory, interest rate, and macroeconomic uncertainty remain principal risks—especially if a recession materializes or public market valuation multiples compress further.

Open questions:

• How deeply will LPs push back on carry fees and performance metrics as true returns diverge from headline valuations?
• Will the IPO pipeline—anchored by large names like SpaceX or Anthropic—materialize at scale, or will public market volatility undercut their valuations?
• Can PE firms rationalize legacy portfolios without acceding to write-downs, restructuring, or accepting depressed exit multiples?
• Will rising public and regulatory scrutiny of private credit spill over to PE allocations, especially in more opaque structures?