Private Equity Q1 2026: Stronger, sharper, more selective 

Global private equity activity strengthened sharply through 2025, culminating in one of the sector's strongest years on record. According to LTM data from EY's Private Equity Pulse Q1 2026, announced deal value rose 63% year-on-year to USD 933 billion, driven by a significant rebound in mega transactions, improved financing conditions, and renewed alignment on valuations between buyers and sellers.²

Deal volume increased a more measured 15%, underscoring the defining structural pattern observed through 2025: sponsors prioritised fewer, larger, and more conviction-driven opportunities. Momentum was most visible in the second half of the year — Q3 marked the strongest quarter, with 167 deals worth USD 306.5 billion, the highest quarterly deal value since 2021, followed by Q4 at 151 deals and USD 268.9 billion.²

Q1 2026: Momentum meets recalibration 

The pace shifted in the first quarter of 2026. PE firms announced 110 deals worth USD 172 billion — a 12% decline by value versus Q1 2025, according to EY.²

Two forces drove the recalibration: geopolitical developments in the Middle East and, more significantly, a sharp shift in sentiment around technology and software as the rapid evolution of AI capabilities introduced greater differentiation in how investors assess opportunity and risk. 

Leveraged financing markets reflected this shift. Spreads widened, retail demand softened, and underwriters applied a greater premium for higher-quality credits — though capital remained available for well-structured transactions.²

Sponsors have adapted their underwriting approach accordingly. Rather than relying on a single base case, firms are now incorporating scenario-based analysis into deal structuring — modelling a range of outcomes to capture both incremental efficiency gains and more transformative shifts in cost structures or revenue streams.²

Underlying momentum remains constructive. Over the last twelve months, PE firms announced USD 909.5 billion in deals (valued above USD 100 million) — a 34% increase on the prior period, according to EY Pulse of Private Equity. Geopolitical developments and exit timing are now the two primary factors GPs expect to influence portfolio performance over the next 12–24 months.²

Valuation gaps narrow, unlocking deal flow 

One of the most significant shifts of the past year has been the narrowing of valuation gaps — the central impediment to dealmaking through 2023 and much of 2024. According to EY's Q1 2026 Private Equity Pulse, GPs are now directing capital toward high-quality, well-structured deals, particularly in asset-heavy sectors where cash flows are visible and inflation-linked. Expectations for multiple expansion are more measured, signalling that returns will increasingly be driven by underlying business performance rather than valuation uplift.²

Sector rotation: Where capital is moving 

Technology: from breadth to selectivity: Application software led deal counts throughout 2025. But in Q1 2026, the rapid evolution of AI capabilities introduced meaningful differentiation: sponsors are now separating genuine AI integrators from companies facing structural disruption. Direct lending funds have pulled back from SaaS (Software as a Service) and ARR (Annual Recurring Revenue)-backed loans, with spreads widening to SOFR (Secured Overnight Financing Rate) +550–575bps from 450–475bps. This repricing of technology risk is structural, flowing directly into PE deal underwriting.⁴

Energy and infrastructure: PE deal value in clean energy reached a record USD 47 billion in 2025, up 9.7% year-on-year, with deal count rising 21% to 87 transactions. Growth was led by a surge in minority growth investments — which overtook buyouts for the first time on record — and by grid-technology deals tied to renewable deployment and AI-driven datacenter demand.⁶,¹⁹

The investment thesis has shifted from decarbonisation to energy sovereignty: with nearly 60% of EU energy needs met by net imports, non-fossil domestic sources are in higher demand as a matter of strategic security rather than purely environmental conviction.⁷

Institutional capital is following: 64% of the 800 institutions surveyed in Nuveen's 2026 EQuilibrium study identify growing energy demand as strengthening the investment opportunity set for clean energy.¹⁴

Note: Nuveen is itself a major institutional investor in clean energy and infrastructure with commercial products in this segment; this figure is drawn from a survey it commissioned and published, and should be read in that context.

Healthcare and financial services: Allocations to healthcare and financial services more than doubled in 2025 as sponsors rotated away from sectors with high import/export exposure.⁵

Revenue-cycle management, medtech, and clinical research are the most active sub-themes. Healthcare PE fundraising reached USD 18.3 billion in 2025, with four funds accounting for 67% of total commitments — a signal of LP conviction concentrating around specialist managers.⁸

Resilient services and physical-world businesses: Capital has rotated toward businesses with stable, recurring demand that is structurally insulated from AI substitution — HVAC, waste management, and residential services among them. This reflects renewed appreciation for a PE classic: predictable cash flows, fragmented markets, and low technological displacement risk. Oak Hill Capital's USD 800 million acquisition of Guild Garage Group at 16x EBITDA is a recent example; 26 PE-backed garage door deals were completed in 2025 alone.⁹

Exits: The recovery is real 

Exit markets turned decisively upward in 2025. PE firms announced USD 481 billion of sales to strategic acquirors — an increase of more than 75% by value, according to EY.¹ Trade sales, which had been broadly flat through 2023 and much of 2024, inflected sharply higher as pent-up strategic demand and greater board-level conviction finally unlocked. 

Total exit value for 2025 climbed more than 50% year-on-year.¹ The year's largest PE-backed listing came in December, when Blackstone, Carlyle, and Hellman & Friedman exited Medline via a USD 6.26 billion IPO — the biggest PE-backed IPO of the year, and a marker of the mega-exit activity that drove the value recovery.¹⁸

Q1 2026 exits reached USD 171 billion — roughly in line with trailing trends. Trade sales accounted for USD 121 billion, secondaries for USD 45 billion, and IPO activity for USD 5 billion. The 29% decline in transaction volumes to 95 deals reflects more curated deal selection rather than a withdrawal of intent.² 

(Note: Exit value figures reflect announced transactions. Closed and settled values may differ, particularly where deal completion is subject to regulatory approval or post-signing adjustments.) 

A significant volume of value remains to be unlocked. More than 16,000 PE-backed companies globally have now been held for four years or longer — equivalent to 52% of total buyout-backed inventory, the highest share on record and roughly ten percentage points above the past five-year average, with the typical company now held more than six and a half years.

At the portfolio level, 39.7% of all private capital NAV now sits in funds aged seven or older — up from 26% in 2019–2020.³ This represents a substantial pipeline of assets approaching maturity — a tailwind for exit activity, secondary market volumes, and continuation vehicle formation in the quarters ahead. 

Secondary markets serve as structural release valve 

Full-year 2025 secondaries fundraising reached a record USD 122.6 billion. In Q1 2026 alone, USD 34.3 billion was raised across 20 funds — with Coller International Partners IX closing at USD 12.5 billion, a 1.4x step-up from its predecessor.³ Transaction volumes reached USD 240 billion for the full year — a 48% year-on-year increase, according to Jefferies.¹³

Fundraising: Contraction with conviction 

The contraction in PE fundraising extended into Q1 2026, with the strategy's rolling 12-month figure falling for an eighth consecutive quarter. In Q1, 133 funds raised a total of USD 90.9 billion. Over the trailing twelve months, USD 385.2 billion was raised across 585 funds — down 29.1% in capital and 47% in fund count year-on-year.³

Capital is concentrating around managers with the strongest track records and most established LP relationships. Over half of Q1 capital went to the 10 largest funds, compared to a decade average of 26.8%. 

Concentration is playing out along specialization as well as scale. Specialist managers captured 74% of all US PE capital raised in 2025 — well above the five-year average of 64%. ((12) Blackstone Life Sciences, Greenbriar Equity Group, and Inflexion each raised follow-on vehicles larger than their predecessors, reflecting LP conviction in proven value creation strategies.³

The funds that do reach close are doing so decisively. In Q1 2026, 91.7% of PE funds closed at a larger size than their predecessors, with the median step-up rising from 46.3% in 2025 to 50.9%. Average time to close compressed from 18.1 months in 2024 to 15.6 months — suggesting that LPs, while more selective, are acting with conviction when they commit.³

The standout close of Q1 was European: Triton Fund VI at USD 6.46 billion, the biggest European PE fund to close in over a year. The Middle East contributed with Onyx Fund I from Abu Dhabi closing at USD 3 billion, targeting AI, biotechnology, and advanced computing in Europe and the US.³

The fundraising environment reflects a broader recalibration rather than a retreat. Distributions in US private equity have run at approximately 16% of NAV annually since 2022, against a long-run average of around 25%, and LPs are prioritising managers who can demonstrate clear exit paths alongside strong deployment track records. ((12) As the exit environment continues to normalise, fundraising conditions are expected to follow.³

Financing: Private credit cements its position 

The financing backdrop that powered 2025's dealmaking remains broadly intact, though conditions have tightened at the margin. According to Bain & Company (drawing on LSEG LPC data), direct lending now accounts for 90% of US middle-market buyout financing, up from 36% a decade ago.¹⁰

Note: this figure is drawn from Bain's Global Private Equity Report 2025; Bain's 2026 report reaffirms that private credit remains the lender of choice for sub-USD 1 billion deals but does not restate the percentage, which remains the most recent published data point.

That dominance is extending up-market: senior participants at a PitchBook LCD credit briefing in late 2025 predicted individual private credit loans in the USD 10–12 billion range within 12–18 months.¹¹ 

Forward-looking 

The Q1 2026 recalibration is a pause shaped by specific macro events. The structural momentum that built through 2025 remains intact. 

Investor intentions reinforce that read. Across the Preqin investor outlook surveys cited by Bain, the overwhelming majority of LPs plan to maintain or increase their private equity allocations — roughly 90% over the longer term, with 40% intending to increase, 50% to hold steady, and only around one in ten expecting to reduce exposure.¹⁶ Near-term intentions are slightly more measured: about 83% plan to commit the same or more over the next twelve months — 34% more and 49% unchanged — while 17% expect to commit less ((16). The principal motivation is diversification: 64% of respondents cite diversification as one of the main reasons, followed by high risk-adjusted returns at 61%.¹⁶ The gap between the two horizons reflects a near-term liquidity bottleneck: in PEI’s LP Perspectives 2026 study, 53% of LPs reported that existing undrawn commitments limit their ability to make new ones, up from 38% a year earlier.¹⁶ 

According to EY, GP sentiment for 2026 is at a two-year high: 80% expect acquisition activity to rise, according to EY's survey of private equity practitioners — though GP respondents naturally reflect the perspective of active market participants with deployment mandates.¹

Moreover, nearly half of GPs surveyed expect their 2025 vintage deals to outperform those from 2023–2024, with AI-enabled business models and digital infrastructure ranking as the most attractive investment themes.¹ 

PitchBook's 2030 Private Market Horizons report forecasts global private market AUM reaching USD 26.7 trillion by 2030, up from USD 20.3 trillion today, at a 5.7% annualised CAGR. PE remains the largest single strategy, forecast to reach USD 8.8 trillion by 2030 at a 5.2% CAGR.¹⁵

Note: These projections are drawn from PitchBook's probabilistic modelling and are subject to significant assumptions and uncertainties; actual outcomes may differ materially. 

One structural tailwind that could materially broaden PE's capital base over the remainder of the decade is the opening of defined contribution retirement plans to private market strategies. With over USD 14 trillion in US DC plans, even modest allocations would represent a meaningful new source of LP capital. Major partnerships are already forming, with the largest GPs developing products alongside retirement platforms and traditional asset managers.¹⁵ 

The continued case for private equity 

Private equity is navigating a more demanding environment. Higher-for-longer interest rates, compressed exit windows, and subdued distributions have prompted some investors to question the asset class. The scrutiny is understandable. 

But stepping back from the cycle reveals something more durable. 

Private equity plays a structural role in the economy that goes beyond return generation. It is the mechanism through which emerging companies access growth capital before public markets are ready for them. It is the engine behind operational transformation in businesses that require more than passive capital. It provides liquidity infrastructure to founders, families, and institutions whose needs the public markets cannot efficiently serve. 

And crucially — as long as new technologies continue to emerge and innovation remains a constant, there will be businesses at every stage of development that need exactly what private equity provides: patient capital, active ownership, and the expertise to scale. 

The rough patch is real. The structural case is more so. For investors with the right time horizon and access to differentiated managers, private equity continues to offer an ownership-based model for value creation — though returns remain highly manager- and cycle-dependent.