- U.S. private-equity firms are sitting on about 12,900 portfolio companies with holding periods near seven years, forcing a 2026 cleanup of aging, lower-performing deals.
- Dry powder remains large at roughly $880 billion but is becoming stale capital, increasing pressure to invest selectively and return cash to LPs.
- Exits rebounded in 2025 but are bifurcated, with high-quality assets selling while weaker or highly leveraged deals rely more on continuation vehicles and other creative structures.
- In 2026, advantage shifts to scaled managers with operational expertise, tighter LP-GP alignment, and focus on carve-outs and under-owned industrial and AI-adjacent assets.
Read More
In 2026, private equity is confronting a period of reset rather than of pure expansion. The abundance of unsold or underperforming legacy investments—valued at over $12,000 portfolio companies in the U.S.—coupled with prolonged holding periods of nearly seven years, has stretched GP-LP patience and raised questions about the sustainability of boom-era valuation assumptions.
Dry powder remains historically large, but its decline from record highs and growing status as “stale capital” underscore mounting pressure on both deployment discipline and return expectations. Firms are being pushed to generate liquidity even at narrow spreads amidst higher interest rates and valuation gaps.
The exit environment is improving, but outcomes are bifurcated: strong realization activity in high-quality, less complex assets, while lower-tier or highly leveraged assets lag. IPOs remain selective, and traditional M&A/private purchasers are sensitive to entry price. Continuation vehicles and creative exit mechanisms are filling gaps where outright sales aren’t feasible.[0search0]
Given these headwinds, strategic competitive advantage will tilt toward firms with operational heft, scale, and disciplined risk management. Mid-market players without strong specialisation or operational improvement capabilities risk being squeezed by LPs favoring managers who can deliver both execution and liquidity. Sectoral focus—such as AI infrastructure, industrials, energy, and under-owned physical assets—offers asymmetric opportunity, given mispricing and secular demand tailwinds.
Open questions and risk factors remain sizable: When (and by how much) will interest rates decline, which is key for buyers and exit valuations? How fast will LP pressure drive exits even at cost? Will macroeconomic shocks (trade policy, regulatory change, inflation) reintroduce valuation volatility? How will regulatory developments—especially around access to private markets and ESG/disclosure—reshape fundraising and deal structures? The answers will materially influence PE rebalancing in 2026 and beyond.
Supporting Notes
- As of September 30, 2025, U.S. PE firms held approximately 12,900 portfolio companies, a slight increase from end-2024, with average holding periods nearing seven years.
- Dry powder was about US$880 billion in undeployed capital in U.S. PE as of late 2025, down from approximately US$1.3 trillion in December 2024.
- Global private equity exits—via sales and IPOs—rose by more than 40% through December 22, 2025, led by deals like Medline’s IPO (the largest since 2021) and the $6.5 billion sale of Ampere Computing to SoftBank.
- Fundraising has concentrated among top-performing, large PE firms: the top 10 funds captured about 46% of U.S. fundraising in 2025, up from roughly 34.5% in 2024. Other funds, especially first-time or mid-market ones, found fundraising significantly more difficult. [0news12][0news20]
- Deal value in U.S. PE rose by about 8% year-over-year in the first half of 2025 (~US$195 billion), although deal volume remained flat, reflecting heavier activity in larger deals.
- Sector trends include strong interest in AI infrastructure, energy transition, and industrial physical assets, as well as growing opportunities in corporate carve-outs, as corporates around the world reassess non-core operations.[0search10]