What Happened to Private Equity?
Private equity (PE) has navigated a period of significant macroeconomic shifts, including high interest rates and geopolitical uncertainty, leading to a more selective and operationally focused market. While fundraising has become bifurcated, favoring larger firms with strong realized returns, deal activity in 2026 shows a trend towards fewer but larger, high-conviction transactions, with exits remaining a key challenge that is increasingly addressed through continuation vehicles and secondaries.
Quick Answer
Private equity is currently characterized by cautious optimism and a focus on operational value creation amidst persistent macroeconomic uncertainties. As of September 2026, deal volumes are more selective, favoring larger, high-quality assets, while fundraising is concentrating among top-performing managers. Exit activity remains constrained, leading to increased use of alternative liquidity solutions like continuation vehicles. The industry is also actively integrating AI for value creation and seeing significant investment in sectors like infrastructure and professional services.
📊Key Facts
📅Complete Timeline15 events
Period of Dampened Deal-Making
Elevated inflation and rapid increases in interest rates by the Federal Reserve significantly dampened private equity deal-making activity and financing markets.
Low Point for Exit Value
Private equity exit value reached a low of approximately 12% of invested capital, indicating significant liquidity pressures.
Secondary Market Reaches Record Highs
The secondary private equity market experienced record highs, with $103 billion in transactions, reflecting a growing need and opportunity for liquidity.
Major Public-to-Private Deal for EA Sports
A notable $55 billion public-to-private package for EA Sports moved the needle on year-end 2025 data, signaling a return of large-scale transactions.
California Regulates PE in Legal Services
California enacted AB 931, prohibiting California attorneys from sharing contingency fees with out-of-state Alternative Business Structure (ABS) entities, impacting private equity's entry into legal services.
Europe Becomes More Attractive for LPs
A survey revealed that the United Kingdom and Europe surpassed North America as the most attractive regions for private equity investment among Limited Partners (LPs).
2026 Outlook: Inflection Point for PE
Morgan Stanley's outlook for 2026 positioned private equity at a key inflection point, anticipating healthier exits and a boost to Internal Rates of Return (IRR) from lower interest rates.
First Major Law Firm Enters PE-Backed MSO
Louisiana personal injury firm Dudley DeBosier became the first major law firm to enter a private equity-backed Management Services Organization (MSO) partnership, seen as a test case for the model.
EU Consults on PE Exit Barriers
The European Commission launched a targeted consultation to gather evidence on possible barriers to exiting private equity investments in the EU and the merits of a secondary trading platform.
US INVEST Act Proposes PE Access Expansion
The US INVEST Act was proposed, aiming to raise private fund adviser registration thresholds and broaden pathways for retail investors to access private funds, while increasing regulatory scrutiny.
Deals Decline in Volume, Increase in Size
U.S. private equity firms completed 3,999 transactions, deploying approximately $314 billion. Deal volume slowed materially, but average deal size rose significantly, indicating increased selectivity.
Exits Slow, Fundraising Subdued
Global private equity and venture capital firms announced 1,504 exits, a 6% decrease from H1 2025. U.S. fundraising reached $159.6 billion, on pace with 2025's muted levels, with capital concentrating in top managers.
KKR's Major Push into Professional Services
KKR announced a roughly $3 billion buyout of Crowe, an accounting and advisory firm, extending the trend of private equity investment into the professional services sector.
Illinois Restricts PE in Legal Services
Illinois enacted a law barring fee sharing with out-of-state ABS entities and placing new restrictions on MSOs for law firms, following California's earlier move.
Outlook for H2 2026: Multi-Year Recovery
Morgan Stanley's mid-year outlook for 2026 suggests that easing macro volatility and greater clarity on inflation and rates could support more private equity transactions, with the foundation for a multi-year recovery in place.
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🔍Deep Dive Analysis
Private equity (PE) has experienced a dynamic period from 2022 through mid-2026, marked by significant adaptation to evolving economic and geopolitical landscapes. The years 2022 and 2023 saw a material slowdown in deal-making and financing due to elevated inflation and rapid increases in interest rates by central banks. This environment challenged the traditional leverage-heavy model of PE, leading firms to re-evaluate strategies and prioritize operational value creation over simple multiple expansion.
By 2025, the market showed signs of a cautious recovery. Global private equity deal value rebounded, increasing by 19% to $2.6 trillion, with buyout dealmaking value reaching nearly $1.8 trillion, a 20% increase over 2024. Exit values also saw a significant increase, climbing 41% to $1.3 trillion globally, marking the second-highest year on record. Public market exits, in particular, nearly doubled the total from 2024, reaching $83.4 billion in the first half of 2025. However, this recovery was often described as 'K-shaped,' with larger, well-established firms continuing to grow while smaller players faced greater headwinds.
Entering 2026, the industry faced renewed uncertainties, including shifting interest rate expectations, energy-driven inflation, and geopolitical tensions, particularly the conflict in Iran. Despite initial optimism, the Federal Reserve signaled holding rates steady, impacting financing costs. This led to a more selective deal environment; while the number of transactions in the U.S. declined in the first half of 2026 (3,999 deals compared to 4,619 in H2 2025), the aggregate capital deployed remained substantial at approximately $314 billion, indicating a focus on higher-conviction, quality assets. Deal volume fell by 34% in H1 2026, but the average deal size rose nearly four times compared to H1 2025, reflecting a concentration of capital in strategic opportunities.
Fundraising has become increasingly bifurcated. While aggregate dollars raised increased by 9% in H1 2026 compared to H1 2025, this was driven by a shrinking number of established managers capturing a larger share of commitments. Overall fundraising remained subdued, with U.S. private equity raising $159.6 billion across 223 funds in H1 2026, on pace with 2025's muted $308 billion, and significantly below the bumper years of 2021-2024. Limited Partners (LPs) are increasingly prioritizing Distributions to Paid-in Capital (DPI) over Internal Rate of Return (IRR) when evaluating fund commitments, demanding more realized returns.
Exit markets continue to be a binding constraint, with global private equity and venture capital exits slowing in H1 2026 to 1,504, down 6% from H1 2025. This has led to a significant backlog of unsold companies. To address liquidity challenges, continuation vehicles and the secondary market have become mainstream tools, offering alternative pathways for GPs to return capital to LPs. The secondary market saw record highs in H1 2025 with $103 billion in transactions.
Artificial intelligence (AI) has emerged as a critical theme, both as a direct investment area (e.g., AI infrastructure, data centers) and a tool for enhancing operational efficiency and due diligence across portfolio companies. Sectors like infrastructure, healthcare, professional services, and energy (especially those supporting AI-driven power needs) are attracting significant private equity interest. Regulatory developments are also shaping the landscape, with discussions around expanding retail investor access to private markets and increased scrutiny on valuation and liquidity management.
As of September 2026, the private equity market is characterized by a strategic shift towards resilience, disciplined deployment, and a strong emphasis on operational improvements. While challenges persist in fundraising and exits, the industry is adapting through innovative financing structures, a focus on high-quality assets, and leveraging technological advancements like AI to drive value creation.
What If...?
Explore alternate histories. What if Private Equity made different choices?