- U.S. private-equity portfolios now hold about 12,900 companies, with average holding periods near seven years as firms struggle to exit boom-era buys at today’s valuations and borrowing costs.
- Dry powder has dropped from about $1.3 trillion to roughly $880 billion, but pressure remains to deploy capital more selectively and prove value creation.
- Exits rebounded in 2025 (up over 40%), led by higher-quality assets and marquee deals like Medline’s IPO and Ampere Computing’s $6.5 billion sale.
- LPs are growing impatient with opaque returns and stretched timelines, pushing managers toward operational fixes, secondaries/continuation funds, and potential write-downs for weaker assets in 2026.
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The state of private equity entering 2026 is one of cautious transition. After several years defined by aggressive acquisition during periods of low interest rates, PE firms now face the consequences of elevated cost of capital, valuation mismatches, overhang of unsold assets, and growing investor impatience. Structural inertia from boom-era deals is clashing with an environment prioritizing discipline, exit readiness, and value creation.
Holding longer than usual is now the norm: U.S. PE portfolios have accumulated over 12,900 companies, many purchased during the pre-rate-hike era, thus carrying the burden of expensive leverage and high valuation bases that are hard to rationalize today. Nearly seven-year hold periods reflect both market resistance and strategic reluctance to accept losses or only modest returns.
While dry powder has decreased substantially, the remaining undeployed capital—nearly $880 billion—still weighs on firms to act. Rising exits in 2025 provide some relief: exits involving high-quality assets, IPOs of marquee companies like Medline, and strategic sales such as Ampere are signaling improved liquidity. However, these gains are uneven, favoring top-tier firms and more traditional exit paths.
Looking ahead, 2026 is likely to be defined by continued exit pressure, especially for mid-tail assets, deeper scrutiny from LPs over governance, fees, and value creation, and a tilt toward operational improvements rather than financial engineering. Sector focus will sharpen—tech, industrials, infrastructure, and AI-adjacent businesses are expected to attract more capital, while more complex, distressed, or regulatory-sensitive sectors may face sluggish exit trajectories.
The tension between capital concentration (top funds capturing more of the fundraising pie) and performance dispersion will intensify. LPs’ patience has limits, and funds with overstretched portfolios risk facing restructured exit strategies (such as continuation funds or secondaries), write-downs, or reputational damage. Firms that build exit optionality upfront, emphasize operational value creation, and maintain alignment with LP expectations stand to be the winners in this next phase.
Open questions remain particularly around interest rate policy (how quickly rates fall), IPO market breadth and valuations, secondary market liquidity, and how regulatory and geopolitical risks—tariffs, tax entitlements, cross-border deal exposure—will alter the calculus for both exits and new investments. The sector is entering 2026 with momentum, but also with clean-up obligations that could test its resilience.
Supporting Notes
- 12,900 U.S. companies in private-equity portfolios as of Sept. 30, 2025, up slightly from end-2024; average holding period nearly seven years.
- U.S. dry powder: ~$880 billion in undeployed capital by Sept. 2025, down from $1.3 trillion December 2024.
- Global private-equity exits in 2025 (sales and IPOs) rose over 40 % compared to 2024.
- Medline completed its biggest IPO since 2021; Ampere Computing sold for $6.5 billion to SoftBank.
- Firms are reluctant to accept meager returns or lower performance-based pay in dealing with companies overvalued in the boom times.
- Top funds capturing a growing share of fundraising; smaller managers facing more difficulty.
- Exit value improving for premium assets; sectors with harder exits lagging.
- LPs increasingly pressing for operational value creation, operational talent, and disciplined underwriting.