- U.S. PE firms enter 2026 with a backlog of about 12,900 portfolio companies and near-seven-year holding periods, keeping pressure on exits.
- With roughly $880 billion of dry powder and slower cash distributions, GPs face rising LP demands to sell assets and return capital.
- Weak IPO markets and valuation gaps are pushing more sales into alternative routes like continuation vehicles, now about 20% of 2025 PE deals.
- Fundraising is sliding, with global buyout and growth PE raising about $310 billion through Q3 2025 versus ~$399 billion a year earlier.
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The PE industry heading into 2026 is grappling with excess inventory (“backlog”) of older portfolio companies, stretched holding periods, compressed exit valuations, and weaker fundraising. While there has been a pick-up in exits in late 2025, the scale of unresolved challenges suggests further cleanup ahead.
Exit Environment & Backlog. PE firms are carrying about 12,900 companies in U.S. portfolios as of September 30, 2025—a slight increase from 2024 levels—and average hold times have remained elevated, at nearly seven years. Exits in 2025 improved: global exit activity rose ~40%, and high-profile transactions like Medline’s IPO or Ampere Computing’s $6.5 billion sale to SoftBank signified some normalization.
Valuation & Exit Strategy Friction. IPOs have contracted as a viable exit route, trade sales have become dominant but often yield lower multiples. Pressures from high interest rates, tariff policy uncertainty, and mismatched seller-buyer expectations have led firms to increasingly use continuation funds—selling assets internally to newer vehicles managed by the same GP. In 2025, continuation vehicle deals comprised about 20% of total PE sales, up from ~12-13% in 2024.
Fundraising Weakness & LP Discontent. Global PE fundraising through Q3 2025 sank to ~$310 billion for buyout/growth funds, well down from the same period in 2024 (~$399 billion), reflecting LPs’ frustration over slow distributions and illiquidity. The disconnect between NAV growth and actual cash returned is straining GP-LP relations and may tighten terms in upcoming fundraises.
Strategic Implications for 2026. The pressure points suggest winners will be those GPs who proactively manage exit strategies: cleaning up underperforming assets, improving operational leverage, maintaining exit readiness, choosing creative liquidity paths, and managing valuation expectations. LPs may increasingly demand more frequent mark-downs or valuation transparency. Regulatory / policy environments—tariffs, interstate M&A scrutiny—add tailwinds for strategic acquirers and headwinds for cross-border or high leverage deals.
Open Questions. How fast will interest rate easing occur, and will that reopen the IPO channel meaningfully? Will regulatory changes (e.g. toward broader private markets access) impose new reporting/liquidity demands on GPs? Can continuation fund usage scale without significant LP pushback on conflict management and valuation discipline?
Supporting Notes
- 12,900 U.S. portfolio companies held as of September 30, 2025; average holding periods near seven years.
- Dry powder (undeployed capital) at ~$880 billion as of September 2025, down from ~$1.3 trillion at end-2024.
- Global PE exit activity—including IPOs and sales—rose by over 40% in 2025 vs earlier years.
- Continuation vehicle deals made up ~20% of all PE sales in 2025 (~$107 billion), an increase from 12-13% in the prior year.
- Global buyout and growth PE fundraising through Q3 2025 totaled ~$310 billion globally, down from ~$399 billion in the same period in 2024.
- Global exit value fell to ~$392.48 billion in 2024—a five-year low—including trade sales (~$193.6 billion), secondary buyouts (~38%), IPOs (~12%), and bankruptcies (>2%).
- In Q3 2025, exit count grew (817 exits in Q3 vs 784 in Q2), but exit values declined 24% QoQ to ~$78.68 billion.