Industry Trends
Private equity rediscovers its roots
Private equity regained momentum in 2025 after three subdued years, with investments surging 44% to $904 billion despite a 6% drop in deal count to 3,018. Average disclosed deal size hit a record $1.2 billion, driven by 13 Mega buyouts above $10 billion that contributed $274 billion mostly in the US, yet barely dented the $1.3 trillion dry-powder overhang. Excluding those megadeals, deal value still rose 16%, with $1 billion, $5 billion transactions up 29% and Europe matching North America’s growth contribution. Public-to-private deals accounted for roughly half of value growth as improved financing and strategic partnerships enabled large take privates. Sectorally, deal value expanded broadly, aided by a global M&A boom linked to better economic conditions, evolving business needs, and AI adoption. Exits totalled the second highest on record, with seven $10 billion-plus sales adding $155 billion and strategic buyers leading marquee transactions such as ECP’s $29.4 billion Calpine sale and GTCR’s $17.6 billion Worldpay exit. IPOs rose 36% but remained a minor channel.
Nonetheless, liquidity pressures persist exit counts slipped 2% to 1,570, unrealized assets swelled to 32,000 companies worth $3.8 trillion, and DPI stayed stuck at 14%, a level last seen during the global financial crisis. LPs remain patient two-thirds prefer waiting for higher MOICs, yet capital commitments are constrained by slow distributions. In this hypercompetitive, higher-rate environment, GPs must execute clear, repeatable strategies, professionalize investor relations, and prioritize DPI to attract scarce capital. Top-quartile buyout funds continue to outperform public markets, and despite concentrated US equity gains, private equity’s differentiated sector exposure and value proposition keep investor interest intact.
Source: Bain & Company
How private credit is entering its next era
Private markets have become a transformative force in global finance, reshaping diversification and portfolio construction for investors ranging from pension funds to retail savers. Private equity laid the groundwork, but private credit has driven the most recent surge, delivering nearly 10% annual returns without a negative year since 2020. The five largest private credit managers: Apollo, Blackstone, Ares, KKR, and Carlyle expanded credit AUM from roughly $750 billion in Q3 2020 to over $2.0 trillion by Q3 2025, with S&P Global Market Intelligence projecting $3.3 trillion by Q3 2029, implying a 15% compound adjusted growth rate. Asset-based finance (ABF) is a key growth engine mentions of ABF on earnings calls rose sevenfold between 2021 and 2025, ABF AUM for the top managers neared $500 billion in Q3 2025 after 25% year-over-year growth, and projections indicate ABF could surpass $1 trillion by 2029, representing 29% of their credit portfolios.
ABF spans assets such as royalties, leasing, and specialized loans, reflecting private credit’s evolution beyond middle-market direct lending into securitizations, fund finance, digital infrastructure, and energy transition. This rapid innovation brings challenges: private assets remain illiquid, opaque, and complex, raising concerns about leverage, limited disclosure, and systemic transparency, especially as alternative managers deepen ties with insurers and banks. To sustain growth, investors demand greater transparency, standardized benchmarks, and consistent reporting to align allocations with long-term objectives and risk budgets. Enhanced data-driven insights and clearer governance are seen as essential to responsibly expanding access and ensuring private markets remain adaptable, resilient, and well-understood.
Source: S&P Global
The rise of co investing in private capital
Co-investments have shifted from occasional arrangements to a central strategy in private equity, reshaping LP-GP dynamics. LPs increasingly favour deal-level participation over blind-pool funds to gain targeted exposure, leverage GP expertise, and secure lower fees and carry. Misha Vasilchikov of MVV Capital Partners notes that co-investments are especially attractive when LPs are not already in a sponsor’s fund, enabling them to access specific industries while relying on the GP’s sourcing, diligence, and operational capabilities. Institutional investors, including major insurance platforms, often use co-investments as their exclusive private market entry point, maintaining strict criteria without building full direct-investment infrastructure. Carlyle’s AlpInvest raising $4.1 billion for its ninth co-investment fund in 2024 underscores the strategy’s institutional traction. Family offices, with flexible mandates and long-term horizons, are among the most active participants, preferring transparency, alignment with family values, and the ability to concentrate capital in high-conviction deals. Repeated partnerships with trusted sponsors deepen their understanding of GP processes and value creation. For GPs, co-investments expand capital access, support larger or concentrated deals, and strengthen LP relationships, serving as a relationship-building and fundraising tool rather than a threat to fund economics. Structures typically involve SPVs or dedicated co-investment funds, with governance, economic alignment, and allocation processes tailored to each sponsor. As investors demand more control and transparency, co-investments are becoming a primary private equity approach, particularly for family offices seeking professional management combined with selectivity. This evolution reflects a structural shift toward strategic LP-GP partnerships centred on targeted, transparent capital deployment.
Source: Forbes
Family offices evolving into professional private equity investors
Family Offices are rapidly evolving from discreet wealth stewards into influential private equity actors, driven by macroeconomic uncertainty, a desire for control, and alignment with their entrepreneurial heritage. In 2024–2025, uneven public markets, geopolitical instability, and inflation have pushed families toward assets offering stability, hands-on influence, and long-term transformation. Data shows rising allocations to alternatives, especially direct investments in small and mid-sized companies, reflecting a shift from passive LP roles to principal-investor behaviour. Their patient capital, freed from fund-cycle pressures, enables counter-cyclical investing, sustained company support, and governance contributions that blend financial performance with family values. Exposure to megatrends—technology, healthcare, AI, electrification, longevity reinforces this strategy, with families overweight tech and actively pursuing digital and climate transitions. Access models are diversifying families increasingly favour direct deals, co-investments, and hybrid structures combining selective fund commitments with institutional-grade processes, while expanding into private credit, real assets, secondaries, and mezzanine strategies.
Challenges include slower exits, higher financing costs, liquidity management, operational complexity, cybersecurity, and regulatory demands, prompting more institutional operating models. Sustainability and impact investing are accelerating, with capital flowing to climate tech, green innovation, and health solutions, and philanthropy integrating social objectives into governance. The profession itself is becoming multidisciplinary, spurring multi-family office capability expansion and potential consolidation. Luxembourg exemplifies these trends, offering AAA-rated stability, regulatory clarity, and infrastructure suited to cross-border private-market structures. Fund-of-funds remain relevant for diversification, manager access, and resource efficiency, used alongside direct and co-investments within hybrid frameworks. Overall, Family Offices are emerging as patient capital leaders shaping innovation, economic transformation, and intergenerational continuity through private equity.
Source: EY
Market Opportunities/Challenges
Private credit direct lending outlook: Tailwinds for 2026
Private credit direct lending is poised for a favourable 2026, supported by a regulatory and tax environment that encourages business expansion, lower interest rates that bolster corporate cash flows, and constrained regional bank lending that sustains demand for private debt. These tailwinds should revive M&A activity, increase deal flow, ease pricing pressure, and potentially improve spreads, enabling lenders to be more selective. The market features two diverging narratives: large asset managers attracting both retail and institutional capital to finance well-known borrowers where recent negative headlines have concentrated and smaller managers targeting niche, lower-middle-market companies with specialized credit expertise. Despite isolated issues at larger platforms, the broader market remains resilient, particularly for managers emphasizing prudent, transparent strategies. Key drivers include moderating inflation, easing tariffs, elevated private equity dry powder, and a supportive macro backdrop that encourages family-owned businesses to pursue buyouts. Secular trends, such as banks’ retreat from corporate lending and borrowers’ preference for customized private credit solutions, further underpin growth. Risks include potential negative headlines tied to performance deterioration or PIK usage, geopolitical tensions, softer consumer spending, weaker labour markets, and middle-market underperformance.
A general decline in interest rates could compress absolute returns, though relative advantages versus other credit options would persist. The outlook favors institutional-focused direct lending strategies targeting private equity-backed, founder- or family-owned lower-middle-market companies with stable, “boring and basic” business models and EBITDA up to roughly $30 million. Managers with disciplined underwriting, strong track records, and consistent cash distributions are best positioned to capitalize on increased volume, stabilize spreads, and enhance risk-adjusted returns in 2026 and beyond.
Source: PineBridge Investments
Private credit gains momentum among European investors
Regulatory reforms since the global financial crisis have structurally reshaped Europe’s corporate lending market by raising capital, liquidity and leverage requirements for banks, especially under Basel III and the EU’s Capital Requirements Regulation III. As Europe implements the Basel “Endgame” ahead of the US, top European banks face higher Tier 1 capital thresholds (11.0%–16.5% versus 8.5%–11.5% in the US), making long-dated, illiquid loans to mid-sized companies less attractive. This has created a persistent funding gap that Europe’s smaller syndicated loan and high-yield markets cannot fill, opening space for private credit funds that offer faster, tailored financing. European private credit fundraising has grown nearly twice as fast as in the US over the past decade, surpassing one-third of global totals in 2025, yet it still accounts for only 24% of leveraged loan issuance versus 40% in the US, leaving room for further gains.
European private credit’s appeal extends beyond supply-demand dynamics. Deals typically feature bilateral or club structures with bespoke documentation, maintenance covenants below roughly €75 million EBITDA, lower leverage and higher equity cushions, all of which enhance lender protections. Portfolios skew toward defensive sectors such as insurance, software and healthcare, contributing to lower default rates than the US two-thirds of the time over the past decade (1.1% versus 1.5%). On a relative-return basis, Europe remains less crowded, lacks US-style Business Development Companies, and offers wider spreads that persist even as global yields rise. Currency hedging allows US investors to capture the spread premium while retaining dollar base rates, whereas European investors gain domestic floating-rate exposure and diversification. With regulatory-driven bank retrenchment, conservative structures and enduring yield advantages, European private credit has evolved from a niche allocation into a core institutional holding, delivering resilient income, capital preservation and diversification.
Source: Funds Europe
Secondaries surge: Private equity fundraising hits new highs
Global fundraising for private equity secondaries funds climbed for a third straight year in 2025, reaching $92.9 billion- up 6.4% from 2024 and the highest total since at least 2020. The surge reflects investors’ appetite for the expanding secondaries market, where stakes in private equity, private credit, and other illiquid assets trade at discounts. Evercore reported that global secondaries transaction value jumped 41% year over year to a record $226 billion. Ardian SAS exemplified the trend by closing Ardian Secondary Fund IX at $30 billion, the largest private equity secondaries fund ever and the biggest private equity fund to close in 2025. Other mega-funds in market include Lexington Capital Partners XI, Blackstone Strategic Partners X, and Dover Street XII, each targeting at least $20 billion.
The fundraising boom contrasts with broader private equity fundraising declines, both driven by a scarcity of exits since 2022. Limited partners (LPs) rely on distributions from exits for liquidity; with dealmaking slow, LPs increasingly sold fund stakes, pushing LP-led secondary sales to $120 billion in 2025 from $55 billion in 2022. GP-led transactions grew even faster, rising to $106 billion from $48 billion, as continuation vehicles let managers retain promising assets while offering liquidity to existing investors. Advisors note that secondaries have shifted from defensive to proactive tools for both LPs and GPs.
Looking ahead, Evercore expects transaction volumes to moderate after 2025’s exceptional growth, yet fundraising should remain strong as secondaries become embedded in portfolio management and liquidity planning. Goldman Sachs found roughly 45% of LPs remain under allocated to secondaries, suggesting continued demand. With primary distributions still sluggish, capital that once flowed to direct funds is increasingly being redeployed into secondaries strategies.
Source: S&P Global
Sector Update
Real estate 2026: The GP advantage
Real estate appears poised for renewed strength in 2026 as valuations remain roughly 13% below 2022 levels, creating discounted entry points across public and private markets. Select subsectors- retail, data centers, and senior housing- show demand outpacing supply, though operator stress from margin compression and refinancing challenges makes careful selection essential. Stabilizing interest rates and improving debt availability, including $157 billion in 2025 private-label CMBS issuance and $30 billion in CRE CLOs, are thawing capital markets. Large banks are cautiously lending again, and healthier REIT IPO and M&A activity could align public and private valuations. Institutional allocators, many under allocated to real estate, are re-engaging: 45% plan to invest more in private real estate over the next year, while only 17% expect to invest less.
Within subsectors, AI-driven data centers offer growth but require selectivity after listed peers fell 14.2% in 2025; retail’s comeback is supported by resilient consumer spending, limited new supply, and strong leasing, favouring necessity-based and experiential assets. The environment also favours platform-level investments that provide flexible capital to real estate operating companies and general partners, helping them manage balance sheets and seize opportunities. Secondary transactions and GP-led recapitalizations remain active, offering buyers seasoned portfolios at potential discounts, while GP stakes and acquisitions support ongoing industry consolidation. Overall, the convergence of attractive valuations, stabilizing rates, improving liquidity, and returning institutional capital underpins a broad opportunity set across the capital stack for disciplined investors partnering with top-tier operators.
Source: Neuberger Berman
Artificial Intelligence Scope/Trends
Five AI forces redefining the 2026 venture landscape
The venture ecosystem is shifting from post-pandemic recovery to consolidation, with AI driving a widening divide among startups and funds. Capital is concentrating around AI-native leaders and infrastructure providers, exemplified by Crusoe’s $1.4 billion Series E, while established venture firms raise oversubscribed funds and smaller managers struggle. Scale now acts as a moat, enabling access to billion-dollar late-stage rounds and reinforcing a flywheel of capital and performance. Application-layer “vertical AI” companies in law, healthcare, and finance are compressing growth timelines, reaching hundreds of millions in revenue within a few years by embedding specialized models into high-value workflows; Cursor and Eleven Labs illustrate this acceleration. These firms gain defensibility through proprietary data, integration depth, and switching costs, though foundation-model advances and pricing pressure remain risks. Public markets are open but selective, with potential IPOs from Anthropic and OpenAI looming, while strong private companies can stay private longer to access capital and provide liquidity. Monetization debates intensify as subscription, enterprise licensing, and usage-based pricing dominate, yet advertising and high-ROI enterprise strategies emerge to ensure durable business models. Investors increasingly demand clear paths to returns. AI is also rewriting company-building economics: startups hit revenue milestones in 18–24 months, leverage AI across functions, and achieve higher revenue per employee, enabling lean teams to scale rapidly. Capital now amplifies leverage rather than merely funding headcount. Overall, the AI megacycle is real but uneven, with structural advantages accruing to leaders who can secure capital, execute quickly, and prove sustainable monetization.
Source: Forbes
