Industry Trends
US deals 2026 outlook
After two years of subdued activity, private equity is regaining its footing as easing interest rates restore confidence and liquidity. However, the fundamentals of the PE business model are shifting, with value creation becoming increasingly critical. Investors are more selective, backing fewer asset managers with clear strategies and proven value creation abilities. Deal activity is improving, with US PE deal value rising 8% year over year in the first half of 2025, though deal volume remains flat. Fundraising has slowed, with global PE fundraising reaching about $150 billion in Q2 2025, down slightly from Q1. Deployment imbalance persists, with some investors finding creative ways to deploy capital while others face pressure from limited partners (LPs). Liquidity remains a challenge, with a backlog of long-hold portfolio companies and uneven exits. Competition is intense, with more sponsors chasing fewer high-quality assets.
Leading managers are innovating by building flexible structures, using continuation vehicles, and emphasizing operational transformation. The deal market is reopening but remains demanding, with lower rates and improving sentiment creating space for renewed activity. Success will depend on disciplined execution, operational improvement, sector specialization, and data-enabled transformation. Firms that upgrade their internal operating models with AI and automated workflows will gain a durable advantage. Private equity is entering a phase of selective recovery, with leadership depending on how firms respond and focus their attention. Those that deploy capital creatively, deliver real value, and meet rising investor expectations will shape the next growth cycle.
Source: PwC
Private credit 2026 outlook
The private credit industry is experiencing significant growth and maturation, driven by larger deal sizes, increased private equity activity, new asset classes, and rising participation from individual investors. Despite macroeconomic uncertainties like inflation and a softening labour market, private credit portfolios remain resilient, showing strong earnings growth and disciplined underwriting. The industry offers diversification, uncorrelated performance compared to volatile public markets, and premium returns, especially as interest rates trend lower.
Private credit has evolved through numerous cycles over the past 30 years, gaining investor confidence and becoming a mainstream asset class. The narrowing bid-ask spreads for M&A, increased financing costs, and the shift towards institutions who have contributed to its growth. The industry is expanding beyond traditional corporate lending into asset-based finance, secondaries, real estate, infrastructure debt, and the Sports, Media, and Entertainment sector. The market for asset-based finance alone is valued at $28 trillion. Regulatory changes and bank consolidation trends are also influencing the industry, with banks optimizing their return-on-equity and capital changes.
Private credit funds are increasingly recommended by financial advisors to high-net-worth individuals, offering broader opportunities and uncorrelated outcomes compared to public markets. The introduction of semi-liquid private market funds has lowered investment thresholds, attracting significant new capital. Future workplace retirement plans may also provide greater access to private credit, pending regulatory changes. Overall, private credit is well-positioned to thrive under challenging conditions in 2026 and beyond.
Source: Ares
Private credit: A new lending landscape
Between 2010 and 2019, the annual growth rate in the private credit market was 12%, doubling to 23% between 2020 and 2022. The market is forecast to reach $2.3 trillion by 2027. Fund managers must adapt to a competitive landscape, rising investor expectations, and complex data demands. They need to innovate and rely more on service providers to capitalize on opportunities in private credit funds.
Private credit in real estate has seen renewed interest since 2020, with fundraising nearly quadrupling over 15 years. Despite recent subdued deal-making due to geopolitical and macroeconomic volatility, growth is expected to continue, driven by debt refinancing needs and abundant investment opportunities. Rapid rate hikes have reshaped valuations and borrowing costs, with $4.5 trillion of commercial real estate debt maturing by 2028, positioning private credit as crucial in the capital stack.
Economic headwinds, interest rate hikes, loan maturities, and geopolitical volatility have impacted the risk-return profile for private credit and real estate funds. Rising costs and cap rate pressures, along with tariffs on construction materials, will slow new construction but increase transactional activity in existing assets. Regulatory changes like Basel III have constrained banks' real estate financing, favouring private credit growth.
Operationally, market participants must focus on due diligence, core competencies, and technology investments. Fund managers need to provide bespoke financing options and data-driven services. Fund administrators face pressure to offer end-to-end services and real-time data access. Investors must carefully evaluate fund strategies, considering leverage and capital market reliance.
Source: Vistra
Venture capital trends for 2026
The venture ecosystem is experiencing a return of liquidity after two years of capital scarcity, with 2026 expected to be a selective, quality-driven environment. The IPO market gained momentum in 2025, with volumes and proceeds increasing significantly, driven by down-round IPOs that traded up post-listing. This trend is expected to continue into 2026, with a backlog of IPO-ready companies. Global M&A volumes surged in the third quarter of 2025, driven by high-value strategic transactions, particularly in the tech sector. Private equity sponsors led the charge, capitalizing on improved market conditions. Regulatory scrutiny remains a concern, but mid-market deals are expected to face fewer hurdles. Interest rates will likely drive M&A activity in 2026, with potential acceleration from a new Federal Reserve chair.
Secondary transactions are projected to exceed US$210 billion in 2025, becoming a mainstream liquidity option. Startups are staying private longer, with more value accruing to private investors. The distinction between private and public markets is blurring, and integrated approaches are becoming more common. AI-driven companies are attracting significant capital, while other sectors struggle. Investors are prioritizing companies with strong unit economics, growth, and defensible market positions. Selectivity and conviction will be rewarded in 2026.
Future is optimistic for the potential for the IPO market, M&A activity, secondaries, value creation in private markets, and the importance of selectivity and conviction in venture capital. The 2026 venture environment will be defined by recovery and selectivity, representing an opportunity for disciplined re-entry into the market.
Source: Wellington Management
Market Sentiments
Venture capitalists to continue pivoting away from climate in 2026
Investors in climate technology have faced challenges due to changing regulations, reduced support for environmental policies, and the rise of artificial intelligence. In 2026, similar difficulties are expected, but there is hope if the sector can adapt. Many climate startups struggled in 2025 to attract capital, with a shift in sentiment from the U.S. government affecting support. Some investors have renamed funds to focus on resilience, impact, and adaptation, while others have withdrawn entirely. A lack of policy support and fewer firms going public in 2025 have made scaling difficult, especially for those seeking venture capital. Fundraising for impact funds has significantly decreased from its peak in 2022.
The focus in the coming year is likely to be on defense tech, energy, and adaptation finance. Many startups and VCs have pivoted from climate solutions to areas like defense, which have gained popularity. For example, a startup that aimed to decarbonize concrete has shifted to critical minerals due to high demand from AI and defense sectors. Investments in energy technologies like geothermal, nuclear, and solar are seen as promising due to rising power demand. However, the appetite for risk in climate tech has decreased following high-profile bankruptcies. The shift from "climate moralism" to "climate realism" suggests that investments in green tech may decline, with a focus on practical transition technologies like carbon capture and storage.
Green premiums are likely to struggle as fewer are willing to pay more for low-carbon products. Cash is expected to flow to businesses that fill market gaps without relying on government support. Technologies responding to climate change effects, such as wildfire recovery and crop resilience, may attract investment.
Source: The Wall Street Journal
Market Opportunities/Challenges
The long-term cost of short-term thinking in infrastructure
Infrastructure projects often focus on initial capital expenditures, which only account for 10% to 40% of an asset's lifetime costs. The remaining 60% to 90% are tied to long-term operations, maintenance, and disposal. This short-term focus, driven by budget pressures and political incentives, leads to hidden liabilities and undermines capital productivity. Adopting a Total Cost of Ownership (TCO) approach can significantly reduce lifetime costs and improve financial performance. For example, a high-speed rail operator saved $5 billion by optimizing maintenance and energy consumption, while a mining company saved $100 million annually through better procurement practices.
Integrating TCO involves embedding life cycle thinking across all phases of an asset's life: planning, design, procurement, construction, operations, renewals, and disposal. This requires cross-functional collaboration, proactive maintenance strategies, and leveraging life-cycle data for predictive analytics. Infrastructure leaders need to develop capabilities in four critical areas: people, processes, technology, and data. Training teams, institutionalizing life-cycle reviews, deploying advanced analytics, and establishing a unified data repository are essential steps.
A shift in mindset towards long-term value, cross-functional coordination, risk management, and portfolio-level management is crucial. This approach ensures that infrastructure decisions made today translate into sustained long-term value, improving capital productivity, financial resilience, and reducing long-term risks. By embedding robust life-cycle management practices supported by digital data platforms, infrastructure management can be fundamentally transformed to serve future generations effectively.
Source: BCG
Dry powder pulls back amid slow fundraising market
Private equity and venture capital dry powder reserves have decreased amid a prolonged fundraising downturn. As of March 31, global private equity dry powder stood at $2.184 trillion, down 5.2% from its December 2023 peak of $2.305 trillion. Venture capital dry powder also fell 19% to $600.9 billion from its 2023 high of $743.9 billion. This decline occurred during a three-year slump in fundraising from 2022 to 2024. Despite a recent fundraising turnaround, top-tier funds from established managers are finding it easier to secure new capital, while newer managers face challenges. The slow pace of exits since 2022, due to interest rate hikes and an uncertain macroeconomic outlook, remains a primary fundraising challenge. Exits are crucial as they return profits to investors, who then reinvest in new funds.
A recent increase in IPOs offers cautious optimism, but significant fundraising improvements are expected more towards 2027. Despite shrinking dry powder, institutional investors continue to invest heavily in private markets, with assets under management exceeding $17.5 trillion globally by December 2024. Many investors are also shifting to emerging asset classes like private credit and infrastructure. Regulators are easing restrictions on individual investors, leading to an expected influx of retail capital through evergreen fund structures. Institutional investors are also prioritizing direct investments alongside fund managers to reduce management fees. The focus for private equity in 2026 will be on exits and boosting distributions to investors, but a strong fundraising year is not anticipated until after 2026.
Source: S&P Global
Sector Update
Healthcare private equity market: Resurgence and record growth
In 2025, healthcare private equity achieved record performance with disclosed deal value surpassing $191 billion and 445 buyouts, the second-highest annual total. Exit value soared from $54 billion in 2024 to $156 billion in 2025, driven by large deals. High levels of dry powder and sponsor-owned assets reaching fund life end fueled this activity. Despite a second-quarter pullback due to policy shifts and trade tensions, global growth was strong, particularly in Europe, which saw deal value double to $59 billion, led by biopharma.
North America experienced a temporary retreat but rebounded with 26 deals over $1 billion. Asia-Pacific set a record deal value, with notable growth in Japan, India, and Greater China. Biopharma remained a major focus, with deal value rising to $80 billion. Provider and related services deal value jumped 57% to $62 billion, driven by technology-enabled assets. Medtech gained momentum, with deal value nearly doubling to $33 billion. Sponsor-to-sponsor deals hit record highs, with over 150 deals valued at more than $120 billion. High-value deals boosted average deal size, reflecting interest in MedTech and healthcare IT.
The report highlights the potential for continued robust activity in 2026, driven by maturing portfolios and exit pipelines. Key questions for investors include Europe's momentum, the future of healthcare IT, strategic demand for pharma services, and value-creation strategies. The stage is set for an active 2026, with sustained performance anticipated across all quarters. Read the full report here.
Source: Bain & Company
Artificial Intelligence Scope/Trends
Sovereign wealth funds powering the VC investments in GenAI
North America continues to dominate the AI investment landscape, accounting for 97% of deal value and 60% of deal volume in 2024. EMEA and Asia have minimal shares, with China focusing on national funding for AI. The Gulf Cooperation Council states are advancing their AI infrastructure, with significant growth projected in Qatar. Asia-Pacific is second to North America in GenAI adoption, with a market size estimated at $17 billion for 2025 and a 44.5% CAGR through 2031. However, investors are cautious, awaiting clearer regulations and proven use cases.
Ireland is emerging as a key player in AI, hosting 16 of the world’s top 20 tech multinationals. The Ireland Strategic Investment Fund (ISIF) is actively investing in home-grown AI businesses and digital infrastructure. ISIF has committed significant funds to various initiatives, including the Cordiant Digital Infrastructure Equity Fund and the Molten Ventures Investments fund. The EU is striving to close the innovation gap with the AI Continent Action Plan and the Apply AI Strategy, focusing on trustworthy AI, regulatory simplification, and adoption across strategic sectors.
The European Commission has outlined actions such as establishing AI factories, mobilizing €200 billion through Invest AI, and training 250,000 AI professionals. OpenAI has called for even bolder steps, including tripling compute capacity and creating a €1 billion AI Accelerator Fund. Concerns about an AI investment bubble are rising, drawing parallels to the dotcom crash and the unicorn boom. High valuations and substantial venture capital investments in GenAI companies warrant scrutiny to avoid potential market corrections.
Source: EY
