- U.S. private equity is still clogged with roughly 12,900 unsold portfolio companies, with average hold times near seven years.
- Dry powder has fallen from its peak but remains large at about $880 billion, keeping pressure on managers to deploy and realize gains.
- Exits rebounded in 2025, but liquidity is selective, with top-tier assets selling far more easily than weaker or overleveraged ones.
- In 2026, LP demands for distributions and better alignment will push GPs toward operational value creation and more continuation funds or creative structures to move legacy assets.
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The Wall Street Journal’s recent article outlines a private equity (PE) industry standing at a crossroads. In 2025 many firms moved to unload legacy investments, but liquidity constraints, valuation mismatches, and high costs of capital continue to complicate exits and impair return profiles. Below is a deeper look into the underlying mechanics, emerging trends, and what PE managers—especially in leadership or GP roles—must address in 2026.
Legacy Portfolio Overhang and Hold Periods
PE firms are sitting on a large volume of aging assets: approximately 12,900 U.S. portfolio companies as of September 30, 2025, slightly up from late-2024 levels, with holding periods averaging nearly seven years. Before the pandemic, median hold times hovered around 5–5.5 years. This overhang is a double-edged sword: it increases risk of loss of value, prolongs capital lock-up for LPs, and intensifies pressure on fund managers for performance without relying on favorable market timing.
Dry Powder, Deployment, and Deal Activity
Undeployed capital in the U.S. fell to ~$880 billion by late 2025 from a peak of ~$1.3 trillion in December 2024. Meanwhile, overall deal value in the U.S. and globally has rebounded—EY reports that Q3 2025 global PE deal value hit record levels (~US$310 billion) as financing conditions eased and valuation gaps narrowed. But deal volume remains soft, especially in middle- and lower-tier assets, and many managers are unable or unwilling to exit at valuations that do not meet their internal return hurdles.
Exit Dynamics and Selectivity
Exit activity (sales and IPOs) increased by over 40% in 2025 compared with 2024. Notable exits include Medline’s IPO and the US$6.5 billion sale of Ampere Computing to SoftBank. However, the gains are uneven: high-quality, strong earnings or defensive industries are finding buyers and pricing; assets overleveraged, underperforming, or sensitive to rate fluctuations are lagging. Expanding use of continuation vehicles and secondary sponsor-to-sponsor sales is a method being used to salvage or extend value in such assets.
Strategic Implications for GPs and LPs Entering 2026
General Partners must do more than wait for market tailwinds. They face rising LP demand for distributions, transparency, fee alignment, and earlier liquidity. Operational improvements will matter more than financial engineering in attracting buyer interest and facilitating exits. Sectors such as healthcare, essential infrastructure, financial services, and industrials seem better positioned than high-cash-burn tech or sectors vulnerable to interest-rate shifts. Moreover, managers capable of navigating continuation funds, sponsor-to-sponsor transfers, or tailored sale processes may outperform peers.
Open Questions & Risks
- To what degree will interest rate policy ease in 2026, and will cost of capital unwind sufficiently to revive wide exit multiples?
- Given the buildup of stale dry powder, how much GP pressure will result in sub-optimal exits or bundling of assets to meet LP liquidity demand?
- Will public markets’ appetite for IPOs reemerge for PE-backed firms, or remain reserved for premium names?
- Will valuations of underperforming, overleveraged companies require write-downs, or can those be deferred via structure (continuations, etc.)?
Supporting Notes
- Approximately 12,900 U.S. portfolio companies in PE firms’ books as of September 30, 2025, up modestly from end-2024.
- Average hold period nearing seven years, down from 2023 highs but above pre-pandemic norms (~5-5.5 years).
- Dry powder in U.S. PE around US$880 billion in September 2025, down from US$1.3 trillion in December 2024.
- Global PE deal value in Q3 2025 reached US$310 billion; valuation gaps between buyers and sellers narrowed; financing conditions improved.
- Global PE exit activity rose more than 40% year-over-year as of Dec 22, 2025; examples include Medline IPO and Ampere Computing’s US$6.5 billion sale.
- High-quality assets enjoy smoother exits; complex or over-leveraged sectors face liquidity drag; continuation vehicles rising in use.
- GPs likely under LP pressure over fees, fund life, liquidity, incentive alignment.