Private equity is moving into a different operating environment than the “easy money” decade that shaped 2010–2021. The playbook isn’t broken—but the inputs changed: the cost of capital reset, exits slowed, and LP liquidity became the bottleneck. The result is a market that rewards discipline, underwriting, and operational value creation—not financial engineering.
Here’s what we’re watching right now, what the data says, and how we think sponsors should position in 2026.
1) The big picture: a market in digestion, not decline
Private markets are still structurally in demand—but the system is working through a backlog created by muted exits and longer holding periods. McKinsey describes this as “a period of indigestion,” noting that global private markets fundraising peaked near ~$1.7T in 2021 and slid to roughly ~$1.1T in 2024—a return to about 2017 levels.
That fundraising slowdown wasn’t evenly distributed. Private credit and infrastructure decelerated far less than private equity and real estate, partly because higher rates help floating-rate credit returns and create refinancing demand.
Translation: capital is still there. It’s just being allocated more selectively, and it’s flowing toward strategies that solve liquidity and duration problems.
2) Fundraising is constrained by LP liquidity (not a lack of interest)
The core issue is distributions. Bain put it plainly: the fundraising drag is tied to persistent LP liquidity pressure, noting that distributions as a portion of NAV sank to ~11%—the lowest rate in over a decade.
PwC’s data reinforces the same reality in the fundraising market: global PE fundraising was about $150B in Q2 2025, with traditional commingled commitments down ~24% YoY, and U.S. fundraising tracking ~40% below the prior year.
What this means for GPs in 2026:
- LPs are still allocating, but they’re prioritizing managers who can return capital (not just mark it).
- Smaller manager dispersion is widening—top-quartile execution matters more than ever.
- Structures that improve liquidity (secondaries, continuation vehicles, semi-liquid formats) keep gaining share.
3) Deal activity is recovering—but pricing and structure matter more
After two down years, the market showed real signs of life. McKinsey reports private equity deal value increased ~14% in 2024 to ~$2T, making 2024 the third-most active year on record by value.
But the rebound has a catch: entry pricing hasn’t collapsed. McKinsey also highlights that median global buyout entry multiples in 2024 rebounded and were the second-highest on record.
So where’s the “edge” if multiples are still rich?
- Better underwriting on cash-flow durability and downside cases
- More conservative leverage assumptions
- Creative structure (seller rolls, preferred equity, earnouts, staged capital)
- Operational upside you can actually execute in a higher-cost-of-capital world
4) Exits are improving, but the backlog is still the story
Liquidity is thawing—just not evenly. KPMG reported that global PE exit value reached ~$832B by the end of Q3 2025, close to 2024’s ~$887B, and that public listing exit value hit ~$198.7B by Q3 2025 (highest since 2020)—with most of that coming from the U.S. and Asia.
At the same time, the industry still needs volume to normalize distributions and relieve portfolio “inventory.” That’s why the “liquidity toolkit” has become mainstream:
- Secondaries as a pressure-release valve
- Continuation vehicles to create optionality on timing
- NAV-based financing (used selectively and carefully)
- Partial exits and recapitalizations when full exits aren’t priced right
McKinsey also notes that secondaries have become a critical release valve, with global AUM above $700B and roughly $130B raised in 2024.
5) Where we see opportunity in 2026
This is the kind of environment where disciplined sponsors can win—because many competitors are forced to transact (or forced to wait).
Themes we think matter most right now:
A) Operational alpha is back in charge
With leverage less forgiving and multiples still elevated, the value creation stack shifts to:
- pricing power + margin expansion
- working capital and procurement
- tech enablement / AI productivity (real ROI, not slide-deck hype)
- add-on M&A with tight integration discipline
B) Liquidity-aware strategies are advantaged
Managers who can generate exits (even partial), engineer clean liquidity options, and avoid “zombie holds” will raise capital faster in this cycle.
C) Private wealth channels keep growing
McKinsey points to rapid growth in evergreen / semi-liquid vehicles: in the U.S., these reached ~$348B AUM and attracted ~$64B inflows in 2024.
This is a long-term structural tailwind for scaled platforms—but it raises the bar on transparency, liquidity management, and portfolio construction.
6) How SCG & Co. thinks about this market
At SCG & Co., our view is simple: 2026 is not a “beta” year—it’s a selection year. The managers who win won’t be the ones with the slickest pitch; they’ll be the ones who can underwrite conservatively, structure intelligently, and execute operationally.
In this environment, we believe the most durable private equity outcomes will come from:
- high-conviction sectors with resilient demand
- businesses with real cash-flow and pricing power
- value creation plans that don’t rely on multiple expansion
- capital structures designed for flexibility, not fragility
Sources (selected)
- McKinsey — Global Private Markets Report 2025 (Braced for shifting weather)
- McKinsey — Asset management 2025: The great convergence
- Bain & Company — Global Private Equity Report 2025
- PwC — Private equity deals: 2026 outlook
- KPMG — Pulse of Private Equity (Q3 2025)