- GPs expect a 2026 private equity rebound as exits restart and unlock deal flow and fundraising.
- Capital will concentrate with managers showing real cash returns and exit track records, while firms leaning on marked valuations face tougher fundraising.
- Europe and the mid-market are gaining favor, and AI is viewed mainly as an operational value-creation lever rather than a speculative trade.
- Continuation funds, GP-led secondaries, and earn-outs are rising to deliver LP liquidity amid valuation gaps and macro/regulatory risks.
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The outlook for private equity in 2026 is decidedly more optimistic among GPs than was the case at the same time in 2025, when macroeconomic shocks and deal illiquidity dampened expectations. According to a survey by Private Equity International, despite cautious entry into 2025, many GPs believe the dealmaking “dam” will break, driven by pressures on LPs to absorb distributions and the need to raise new funds—both of which require exits to occur.
Fundraising in the first three quarters of 2025 amounted to approximately US$577.7 billion globally, a figure many GPs expect may reverse previous declines if exit activity accelerates and LPs regain confidence. Supporting this, EY reports that exits through Q3 2025 reached approximately US$470 billion, marking a nearly 40 percent year-over-year increase in value. Rising exit liquidity is seen as essential to unlocking new fundraising.
However, GPs recognize that performance stratification will deepen. Firms with strong cash returns, proven exit track records, and less reliance on marked valuations are likely to succeed, while those lacking liquidity or resting on valuation multiples may struggle. Practices such as fund extensions, asset transfers, smaller vehicles, and GP-led secondaries are expected to become increasingly common.
Geographically, Europe—particularly the mid-market—is becoming more attractive, owing to policy stability, real-economy opportunities, and tariff variabilities in the U.S. that make diversification more appealing. Meanwhile, innovation, and specifically artificial intelligence (AI), is a central theme. GPs are looking beyond speculative first-derivative AI bets; value creation via AI transformation in traditional sectors, infrastructure strategy, and disciplined valuation is being emphasized as a competitive differentiator.
Yet risks remain. Valuation gaps between AI “haves” and “have-nots,” concerns about overvaluation in early AI bets, regulatory scrutiny (e.g. merger control, trade practices), and macro risks (tariffs, trade policy, rates) are cited as potential headwinds. The industry’s ability to deliver real liquidity and satisfy LPs will be critical to sustaining momentum into 2026.
Strategic implications:
- GPs should prioritize achieving exits—even at lower multiples—to satisfy LP appetite and support future fundraising.
- Firms lacking strong track records may need to adopt alternative structures (continuation funds, secondaries) and vehicle design to keep LPs engaged.
- Sectors with AI adoption and Europe mid-market opportunities should be selectively targeted, but with disciplined value-creation plans rather than chasing hype.
- Risk management (valuation discipline, regulatory outlook, geopolitical exposure) must be embedded into investment strategy to avoid missteps.
Supporting Notes
- GPs believe the “liquidity jam” will dissolve in 2026, with Oak Hill’s managing partner calling for a “blockbuster year for dealmaking.”
- Fundraising in the first three quarters of 2025 was US$577.7 billion, with hopes that trend will reverse in 2026.
- Some GPs expect firms with solid exit and cash return track records will attract new fund capital, while those with heavily marked valuations and low liquidity will struggle.
- Geographic allocation is shifting toward Europe and the mid-market, seen as safer and offering real-economy growth sectors.
- AI is viewed as central to the value-creation playbook—those that integrate AI across sectors and infrastructure are expected to outperform; speculative or first-derivative AI bets raise concerns.
- From Dechert/Mergermarket: 49 % of respondents cite geopolitical conflict as a major factor influencing dealmaking over next 12-18 months; 48 % favor earn-outs to bridge valuation gaps; 46 % are using GP-led secondaries or continuation vehicles to provide LP liquidity.
- EY-US reports exit values of ~US$470 billion through Q3 2025—up ~40 % from same period in 2024—and a fundraising total of ~US$340 billion through Q3, indicating a ~25 % decline year-over-year.