Industry Trends
Private equity co-investing hits new highs
Private equity LP co-investments surged in H1 2026 to $198.19 billion, already surpassing most full year totals of the past six years and on pace to exceed 2025’s $253.01 billion. Supersized AI financings, notably Anthropic’s $65 billion round, were pivotal. LPs favour co-investments for lower fees, while GPs use them to stretch beyond fund limits and aid fundraising. Among pensions, the top 20 hold $757.50 billion in private equity exposure; CPPIB and CalPERS each exceed $100 billion. With exits slow, DPI remains muted, and secondaries are becoming a core tool to generate distributions. Top deals included Blackstone Energy Transition Partners’ agreement to acquire Dresser Utility Solutions; EQT X’s purchase of Corza’s biosurgery unit (maker of TachoSil) while GTCR retains the rest; and Summit Partners leading a $1 billion–plus investment in identity firm Keyfactor. Fundraising highlights: Arctos closed $6.2 billion for Keystone Partners Fund I (above a $4 billion target); CVC Catalyst III raised ~€3 billion; Serent Capital VI $1.3 billion; Bregal Milestone III €915 million focused on software/AI/cyber; and Regal Healthcare Capital Partners IV $610 million.
Middle market moves included Versant’s ~$530 million acquisition of Full Swing Golf, H.I.G.’s majority stake in Germany’s Terras, Shore’s purchase of Thrive Pass, and Argosy’s control of K&L Freight. Globally, H1 2026 PE deal value rose 5% year over year to $234.05 billion, with $1 billion plus deals at $205.77 billion (88%). Investors are more selective, favouring branded, tech differentiated assets (Ropes & Gray’s Elizabeth Todd). Asia-Pacific ex-Japan jumped 127% to $93.02 billion, led by AI and infrastructure, with India/SE Asia focused on AI apps and data centers and China on pure-play AI (GPCA).
Source: S&P Global
Private markets: When alternative funds open to retail investors
Private markets: private equity, private debt, and infrastructure are opening to retail investors, driven by innovation and new EU regulations, with Luxembourg at the forefront. European AIF assets rose from EUR 5.1 trillion in 2015 to about EUR 8.2 trillion in 2024, now roughly one-third of Europe’s fund industry. Luxembourg outpaced the region: AIF AUM climbed from about EUR 1.04 trillion in 2020 to roughly EUR 2.56 trillion in 2024, while the number of AIFs grew from ~6,000 to over 10,000. Globally, alternatives are projected to reach USD 32 trillion by 2030 (from USD 16 trillion in 2021), reflecting investor demand for diversification, long-term returns, and lower correlation to public markets. ELTIF 2.0 (effective 2024) removed the EUR 10,000 retail minimum and broadened eligible assets and flexibility, while AIFMD II reinforced liquidity tools, risk management, and transparency enabling semi-open, hybrid vehicles with periodic liquidity that widen retail access.
Luxembourg now hosts about 25% of European fund assets, with EUR 2.455 trillion in alternative NAV in 2025 (PE EUR 1.088 trillion; PD EUR 550 billion). Alternatives account for 30.7% of its total NAV; the country holds 44% of European PE/VC funds and is home to operations of 18 of the world’s 20 largest PE managers. ELTIFs surged: Luxembourg vehicles grew from 23 (2021) to 148 (2025), representing 60% of the EU’s 249 ELTIFs. While retailization expands access, it heightens the need for clear disclosures, education, robust valuations, and liquidity management, especially in semi-open funds with NAVs based on unrealized assets. With regulatory flexibility, stability, and a mature ecosystem, Luxembourg is poised to remain the EU hub for democratizing private markets.
Source: EY
How tokenization is reshaping access to private markets
Institutional involvement is reframing tokenization from asset specific experiments to a strategy for removing market friction and delivering measurable ROI. Unlike earlier digitization (e.g., ETFs) that left capital market plumbing intact, blockchain reduces reliance on intermediaries and accelerates settlement, moving tokenization toward modernizing financial infrastructure. The focus is on programmable ownership (smart contracts), lower reconciliation friction, and near-instant post-trade settlement, positioning tokenization for mainstream institutional use. In private markets, companies staying private longer face pressure to unlock liquidity, traditionally via tender offers and secondary sales constrained by legacy systems. Tokenization can streamline these processes by embedding rules such as accredited investor status and issuer defined restrictions, directly into workflows, reducing bottlenecks and operational overhead. It also enables fractionalization and, in some cases, secondary transferability of illiquid assets like private equity, giving institutions balance sheet flexibility without full exits. Liquidity will still hinge on supply and demand, and achieving more liquid private markets will require business model shifts; tokenization is a tool to create liquidity opportunistically, not a guarantee.
Early use cases target existing institutional needs: tokenized money market funds and short-term credit, collateral mobility, and intraday liquidity management. Financial firms are offering digital asset exposure and enabling payments in digital currencies. As infrastructure matures, expect tokenized alternative assets and funds, broader access via wealth platforms, pre-IPO testing, and founders’ funds.
Tokenization won’t create a fully liquid private share market, but it makes previously impractical liquidity feasible by digitizing workflows and compressing settlement. Regulatory guardrails (accreditation, KYC) persist, with institutions as gatekeepers. Lower barriers can improve distribution efficiency, expand retail access, and enhance institutional optionality over time.
Source: Morgan Stanley
Quarter/Mid Year Review
Pace of private equity exits slows in H1 2026
Global private equity and venture capital exits slowed in the first half of 2026 amid persistent valuation gaps between buyers and sellers. Firms announced 1,504 exits from Jan. 1 to June 30, down 6% from 1,601 in H1 2025, per S&P Global Market Intelligence. While exit value surged year over year, it was skewed by SpaceX’s $250 billion acquisition of X.AI in February, a liquidity event for X.AI’s VC backers. Overall activity decelerated for a second consecutive quarter: Q2 2026 exits fell to 688 from 816 in Q1, the lowest quarterly total since Q1 2024.
Market uncertainty, geopolitical conflicts, trade tensions, and the disruptive impact of AI continues to widen the buyer-seller divide, said Scott Fisher of Lowenstein Sandler. Top-tier assets are trading; many others are stuck. The slowdown is intensifying pressure from limited partners after a fourth straight year (2025) of record-low buyout fund distributions, constraining fundraising. Bain & Co.’s Alexander De Mol linked fundraising challenges directly to weak exits. He noted exit value topped $150 billion in only two quarters across 2022–2024, then did so for six straight quarters starting Q4 2024 before dropping sharply in Q2 2026. LPs want materially higher exit volumes.
AI uncertainty is complicating software exits and beyond with diligence increasingly probing AI impact and internal adoption. Despite this, IT led H1 exits with 428, outpacing industrials at 266. Major deals included a $10.61 billion InPost ownership reorganization (Advent and FedEx at 37% each) and Eli Lilly’s $7.86 billion purchase of Centessa. Managers are more willing to concede on price to deliver liquidity, though most GPs resist selling below valuations, as LP confidence wanes when exits are 5%+ under recent marks.
Source: S&P Global
Private equity: Key takeaways from Q2 2026
Private equity deployment moderated in H1 2026 as sponsors stayed selective amid uncertainty and AI-driven underwriting shifts. Globally, PE acquisitions fell 10% versus H1 2025, though aggregate deal value was roughly flat. The pullback was concentrated in software, where deal value dropped 50%, while non-tech deals rose 9%. In the US, historically the hub for large software takes privates deal value fell 25% and volumes 13% as sponsors rotated toward “hard” and resilient assets with clearer trajectories.
Resilience is the dominant theme shaping sector focus. Sponsors are increasing exposure to healthcare, energy, infrastructure, and defence. Surveyed GPs cited healthcare services and digital infrastructure as top areas for net exposure growth over 12–24 months (each named by 45%-50%). Data centers are a focal point, but investors are broadening to the wider AI-enablement stack, including grid and transmission capacity, power generation, cooling technologies, software, and semiconductors.
Exits remained steady: announced exit value rose 9% versus H1 2025. Trade sales anchored roughly two-thirds of exit value, rising to 71% in recent months as corporates pursued transformational M&A and turned to PE-backed platforms. Greater seller pragmatism is evident: 90% of GPs would accept a discount for immediate liquidity on long-held assets (most commonly 6%-10%), though valuation gaps persist. Key impediments include unmet underwriting expectations (36%), market pricing below carrying values (12%), limited buyer universes (18%), and business readiness (14%).
Firms are prioritizing exit readiness and operational value creation. Increased focus areas include AI, automation, and data infrastructure (76%), margin and cost transformation (62%), and cash/liquidity management (52%). Outlooks are constructive: 72% of GPs expect higher deployment and 56% expect faster exits over the next six months, despite headwinds from valuations, rates, and geopolitics. Disciplined underwriting and agility remain critical to capitalize on resilient, defensible assets tied to AI’s next phase.
Source: EY
Market Sentiments
Private credit 2026 mid-year outlook
Private credit navigated an unpredictable first half of 2026 marked by a paused Fed, stickier inflation, AI-related concerns and software sector repricing, and elevated redemptions in semi-liquid vehicles, yet core fundamentals stayed resilient. Defaults remain well below their 2024 peak, suggesting stress is concentrated, not systemic. Interest coverage edged higher, leverage stayed stable, and consensus points to re-accelerating EBITDA growth among leveraged borrowers. While returns were not the strongest, the asset class delivered reliable income, low volatility, and competitive performance versus traditional fixed income. Forward return potential has improved, supported by wider spreads, solid borrower fundamentals, and rising financing demand.
Supply-demand dynamics are tilting toward lenders. A pullback in technology underwriting and net outflows from BDCs and other vehicles widened spreads on new direct lending and broadly syndicated loans, restoring better compensation for risk after prolonged compression. In solutions oriented private credit, demand is accelerating as private equity owners of long-tenured assets seek flexible, bespoke capital; unsold PE assets at the end of their 12-year life could approach $903 billion by 2029. Institutional appetite (pensions, insurers) remains strong even as parts of the wealth channel moderate.
The strategy emphasizes scale, disciplined underwriting, and sponsor relationships, focusing on senior secured lending to high-quality middle-market companies. Within software, the focus is on mission critical platforms with high switching costs and proprietary data; AI is seen as expanding opportunities for strong leaders. Flexible capital strategies target hybrid and structured solutions across sponsored and non-sponsored situations, with rising M&A expected to lift demand. Monitoring centers on sentiment catalysts, software credit quality, and nontraded BDC redemptions, historically fertile periods for attractive lending vintages.
Source: Morgan Stanley
Market Opportunity/Challenges
US direct-lending activity falls even as private credit firms raise more cash
The EY Global PE Exit Readiness Study 2026 finds private equity firms are embedding exit readiness as a continuous discipline amid constrained liquidity, volatile markets, and interest rate uncertainty. Despite solid portfolio performance, exits are more complex and less predictable, with distributions at about 15% of NAV versus a typical 20%-25% and assets held longer.
Early preparation is proving decisive: 86% of GPs report improved valuations when exit planning is undertaken, with the strongest results when started 12-24 months before sale. The study underscores the importance of strong alignment between sponsors and management: 82% of GPs and 70% of management teams say they are mostly or fully aligned on timing, valuation expectations, and buyer strategy. However, management teams want more support to address bidder scrutiny by crafting a clear, defensible, data-backed equity story. A persistent challenge is evidencing value creation initiatives in exit EBITDA, highlighting the need for robust data and rigorous performance attribution.
AI is emerging as a key exit differentiator. The share of GPs identifying AI as a significant challenge has more than doubled, reflecting buyer focus on credible AI strategies supported by strong data and a clear path to future value creation, not just AI activity. In an environment where exit windows can be brief and diligence intense, readiness becomes a source of competitive advantage.
The study concludes that firms best positioned to convert performance into realized returns are those that prepare early, maintain tight GP management alignment, and present a credible, data-backed, AI-informed investment case that proves sustainable value creation in both the business and the numbers.
Source: Reuters
Private credit: Insurers step up as liquidity pressures build
Insurers and other large institutions plan to step up allocations to private credit even as wealthy investors pull back over illiquidity concerns and regulators scrutinize rising ties to insurance balance sheets. A Marsh survey found 57% of insurers intend to increase private credit exposure over the next 12-24 months, including 81% of firms managing more than $25 billion and 73% of life insurers. The market has been quieter in recent weeks after a wave of redemptions, with capital shifting toward investors comfortable with long lockups and away from clients with lower tolerance for limited exits. Blackstone reported materially lower withdrawal requests early in Q3 after investors sought to redeem 10% of shares in Q2, when the fund repurchased its customary 5%. Despite perceived AI-related risks, Blackstone raised nearly $70 billion across its businesses, with institutions continuing to allocate while fundraising from wealthy investors stayed muted.
Insurers favour investment-grade direct lending, private placements, asset-based finance, and structured credit over loans to private-equity-backed companies. Still, two-thirds cited shrinking illiquidity premiums and tighter spreads, and more than half flagged weaker underwriting or covenants, raising the bar for private loans to justify illiquidity and valuation risk. Limited secondary markets are expanding exit routes: GCM Grosvenor raised $1.2 billion and Ares $7.1 billion for private credit secondaries. Lenders remain active, with Apollo Debt Solutions BDC originating about $1.3 billion (mostly first-lien) and Ares Capital refinancing roughly $709 million via a CLO. Europe’s insurance watchdog is examining structures that could shift risks between insurers and affiliated asset managers.
Source: Reuters
The rise of private debt for insurance investors
Private debt is becoming a core, not niche, allocation in insurance portfolios, valued for strategic benefits. Beyond potential yield, its chief appeal lies in bespoke structures and cash-flow shaping that support liability matching longer duration, inflation linkage, amortization, and matching adjustment needs that are hard to source publicly. As banks retreat and private origination deepens, insurers’ focus has widened from corporate direct lending to infrastructure debt, real estate debt, and asset‑backed finance.
Allocations should start with liabilities, not asset-class labels. Tolerance for illiquidity, duration needs, liquidity budgets, and the risk of forced selling vary across life and non-life insurers and should dictate the role private credit plays like income enhancement, diversification, or access to differentiated risk premia.
Capital treatment can redefine attractiveness. Solvency II, matching-adjustment rules, ratings, and local regimes influence how unrated or securitized structures are viewed. Structure matters; credit and balance-sheet analysis must be integrated to assess capital efficiency, ratings sensitivity, and optionality.
Illiquidity premia of roughly 100–200 bps remain achievable but are not automatic; outcomes depend on valuations, deployment pace, and avoiding crowded segments. Investors must underwrite for downside, not base case, addressing weaker lending standards, ratings migration, prepayment uncertainty, fraud, and shifting fundamentals. Cash-flow behaviour under stress such as extended timelines if refinancing fails on a data-center construction loan is the real test. Best opportunities persist in infrastructure aligned to energy transition and digital networks, plus asset‑backed finance, secondaries, and selective stressed strategies. Manager discipline, sourcing edge, and portfolio construction are paramount.
Source: Alliance Bernstein
Rethinking core-plus with private investment grade credit
As public markets become increasingly concentrated and real yields compress, investors are reassessing how to generate excess returns without taking on significantly higher credit risk. Traditional core-plus fixed income strategies often rely on lower-rated bonds, emerging market debt, or unrated securities to enhance yield. However, with high-yield spreads remaining tight, the additional compensation for taking on greater risk has become less attractive. Private investment-grade (IG) credit is emerging as an alternative, offering the potential for additional spread while maintaining investment-grade quality.
Several structural developments are driving this shift. Public and private credit markets are increasingly converging through similar underwriting practices, pricing mechanisms, and rating methodologies. At the same time, alpha generation is becoming more dependent on asset origination, structuring, and security selection rather than broad market exposure. Private IG assets often feature negotiated covenants, collateral packages, and customized structures that can provide enhanced downside protection and improve recovery prospects compared with traditional unsecured corporate bonds of similar ratings.
Historically, liquidity constraints limited investor access to private credit. That landscape is changing as private investment-grade credit becomes available through structures that offer regular liquidity and greater accessibility. This broadens the investable universe for fixed income investors and provides new opportunities to diversify portfolios while remaining within an investment-grade framework. Meanwhile, the growing concentration of issuers and rise of passive investing in public markets may reduce opportunities for traditional excess return generation.
The evolution of investment vehicles is further supporting adoption. New portfolio solutions combine public and private credit exposures while offering features investors expect, including liquidity, transparency, daily valuation, and active management. As public and private credit markets continue to converge, investors are increasingly evaluating how private investment-grade credit can enhance portfolio construction, improve risk-adjusted returns, and provide a more efficient source of income without compromising credit quality.
Source: Apollo
