Private Equity 2026 Outlook: Exits Climb, Dry Powder Shrinks & Continuation Funds Rise

The private equity (PE) industry is entering 2026 under intense pressure to clean up its books. A glut of unsold portfolio companies and stretched holding periods are testing LP patience and threatening dry powder deployment. Though recent exit values suggest positive momentum, underlying deal volume and valuations for second-tier assets remain fragile. Continuation vehicles and self-transactions are gaining traction as workarounds for weak exit markets—and while useful, these structures pose reputational and governance risks.

One core challenge is the aging of PE investments. The average hold period has only modestly declined from its 2024/2023 peak of about seven years, still above historical norms. This contributes to exit-logjams, limits distributions back to LPs and heightens pressure to monetize or restructure. Quantitatively, 2025 exit value in the U.S. already surpassed all of 2024 (~US$472 billion vs US$377 billion) but was concentrated in relatively few transactions. [5]

Meanwhile, dry powder—the uninvested capital PE managers can deploy—has fallen from its all-time highs of 2023. Global dry powder stood around US$2.515 trillion mid-2025, down from US$2.725 trillion, with U.S. dry powder down to about US$880 billion by September 2025. Compounding this, a notable portion of dry powder is “old money”—capital raised several years ago—which inflates risk of capital impasse [6].

Exit channels remain constrained. While valuations for high-quality assets continue to support large megadeals, buyer-seller valuation expectations diverge elsewhere. IPOs, once a promising route, remain uncertain despite some bright spots. To compensate, PE firms are using continuation funds—about one-fifth of sales—to pass portfolio companies from older to newer funds under the same GP, effectively telescoping liquidity without traditional exits. This helps LP cash flow but raises transparency and valuation issues [7].

Strategically, top-tier funds are better positioned to benefit: they have stronger operational capabilities, access to cheaper capital, and greater flexibility to utilize alternative exit structures (secondaries, carve-outs, CVs). Lower-rank GPs face fundraising headwinds, while LPs demand more clarity on fee structures, valuation, and exit timing. In markets with high regulatory or macro risk, capital is shifting toward safe assets and resilient sectors (e.g., AI, energy, infrastructure) rather than opportunistic buyouts in speculative growth or distressed situations.

Open questions include: How far will valuations decline for mid-market or weaker assets? Will 2026 see traditional exits (IPOs, third-party sales) rise meaningfully, or will PE rely further on continuation vehicles? To what extent will LPs accept lower returns or align fee structures more closely with performance? And how will rising regulatory scrutiny (including around conflicts in CV/self-sales) play out?