Private Equity:
2026 H1 in Review
Private equity H1 highlights
- Private equity firms entered 2026 with optimism but hopes that this would be a year of long-awaited recovery have been deferred.
- A software sell-off and the closure of the Strait of Hormuz put dealmaking and fundraising back into a holding pattern.
- GPs adopted a highly selective approach to buyouts and exits, leaning into hard assets with wide defensive moats against AI.
- Continuation vehicles and dividend recaps offered much-needed alternative sources of liquidity.
- The macro-backdrop is more settled going into the second half, but GPs remain on high alert in unpredictable markets.
Elliott Brown
Global Head of Private Equity
Recovery hopes deffered
Private equity firms started 2026 hoping to accelerate distributions and kick-start fundraising. Six months on, private equity firms are hoping to accelerate distributions and reignite fundraising.
This is not where private equity firms expected to find themselves halfway through another year.
Dealmakers began 2026 in a positive frame of mind. Global deal value hit US$4.5 trillion in 2025, the second-best year on record, according to figures from the London Stock Exchange Group. Inflation had peaked and interest rates were coming down. After years of tepid M&A and false starts, there was every reason for optimism that 2026 would finally be the year that the PE industry shifted back into gear.
But in a pattern that has become all too familiar for GPs, geopolitical shocks and macro-economic disruption put a long-awaited revival on hold. Again.
Software sell-off and Iran war dent sentiment
In February, the release of a new AI tool wiped US$300 billion of the value of software stocks amid fears that AI agents would replace traditional software-as-a-service (SaaS) tools.
The “SaaS-pocalypse” knocked private equity confidence hard.
Software has been a sector favorite for buyout firms, accounting for around 14% of US PE deal value during the last decade, according to Pitchbook. In 2025, almost one in every five dollars GPs invested was in a software company. At the end of March, private equity software valuations were down 8%, according to MSCI figures analyzed by Bain & Co. The drop was less pronounced than in public markets, but enough to sting.
Just a few weeks later, GPs had another macro-economic jolt to deal with, as conflict in the Middle East led to the closure of the Strait of Hormuz, a shipping lane used to transport around a fifth of global oil and natural gas energy supply. The conflict saw a subsequent rise in oil prices of 60%, bringing fears of inflation and interest rate hikes back into the frame.
These market tremors undermined confidence just as dealmakers were beginning to anticipate a recovery, and the succession of disruptive events had a direct impact on exits, distributions and fundraising.
Global exit value dropped to US$96 billion in Q1 2026, 34% down on Q4 2025 and the lowest quarter on record for exits since Q1 2024.
A stuttering exit market meant little improvement to distributions, which remained at near record lows, according to Bain & Co. Distributions as a percentage of NAV currently sit at 13.4 %. This compares to an average of 25% between 2010 and 2025.
Stalled distributions have meant ongoing tepid fundraising. Global PE fundraising fell to US$373 billion in Q1 2026, according to KPMG analysis. On a 12-month rolling basis, this marked the lowest level for fundraising since Q1 2017.
Selective and nimble
With the “new dawn” for deals and distributions once again deferred, GPs have become highly selective and flexible.
High-quality companies have continued to trade at good prices (according to MSCI analysis, 75% of portfolio companies have exited at premiums to NAV marks), despite macro mayhem.
The businesses that have been sold, however, represent a very select group of companies.
Companies with hard assets that provide essential services are a case in point, and have exited successfully to buyers seeking deals that offer protection against AI disruption. Platinum Equity, for example, sold waste management infrastructure company Urbaser to Blackstone and EQT in a US $6.6 billion deal.
The pool of assets that GPs can be sure will sell in M&A processes, however, is a small one, and firms have had to plough other furrows to sustain distribution flow in the absence of clean exits.
GP-led secondary deals, where managers transfer select assets from existing funds into new vehicles, reached a record US$108 billion in 2025, up from US$77 billion in 2024, according to Coller Capital. Momentum has carried into this year, even though LP scrutiny of continuation vehicle (CV) terms and potential conflicts of interest has intensified.
CVs, the predominant GP-led deal structure, are now a proven liquidity mechanism for private equity firms, and have, on the whole, generated decent returns for LPs too. StepStone research shows that 60 percent of assets moved into CVs between 2020 and 2024 generated gross returns in excess of 3x. Only 28 percent of assets in the wider buyout market did the same. Debt markets have also provided liquidity optionality. In 2025, buyout firms in the US borrowed US$94 billion from loan and bond markets to fund payouts. In the absence of exits, dividend recapitalizations continued to generate distributions through the first half of this year, with a number of sponsors executing recaps through the first half, according to Bloomberg reports.
There is no doubt LPs would prefer to see an increase in “clean” exits via IPO or M&A, but in a choppy market where listings and deal processes can be hostage to market gyrations, some liquidity has been better than none.
What’s next for private equity?
After a very challenging first half of the year, there are at least some signs of respite for firms as they move into H2 2026.
The software sell-off has run its course, and software stocks have recovered to roughly the same “pre-SaaS-pocalypse” levels.
Software companies still face some disruption to pricing models and will have to switch from subscription fees based on headcounts to charges linked to usage and outcomes, but in the long-term, AI could actually prove a tailwind for software companies.
For software-focused GPs, this has come as a welcome relief, especially for those that have backed industry-focused software that has integrated years of proprietary data and is very difficult to pull out and replace.
The conflict in Iran has also simmered down. Oil prices have receded to levels seen before the conflict escalated, and inflationary pressures have subsided although risks remain.
So, as the macro-economic picture stabilizes, is this the moment when the “wave” of delayed dealmaking finally manifests? GPs have seen this movie before and won’t be banking on it.
What firms will be focusing on is playing to their strengths, priming prized assets for exit, running hard at select assets where they have genuine conviction, and taking opportunities to execute CVs and dividend recaps to return capital to investors.
Firms that execute well in these areas will stand out from the crowd and continue to deliver. A period of stability that extends beyond a quarter or two, however, will not go amiss.
Private Credit:
2026 H1 in Review
Private credit H1 highlights
- Private credit has been buffeted by defaults, AI disruption fears and record redemption requests in the first half of 2026.
- Negative headlines have dominated the private credit narrative, but the asset class’s underlying fundamentals have held up much better than market sentiment suggests.
- Private credit returns data and default risk continue to compare favorably with other asset classes.
- Despite a challenging first half, private credit is well positioned to ride out the storm and keep delivering competitive risk-adjusted returns.
Jessica Mead
Global Head of Private Credit
A challenging start to 2026
The first half of 2026 has been challenging for all alternative asset classes, but none more so than private credit.
For more than a decade private credit has enjoyed an almost uninterrupted growth surge. Private credit assets under management (AUM) reached US$3.5 trillion at the end of 2025, growing more than 10-fold in around 15 years.
Rapid asset growth has been matched by strong returns. According to Hamilton Lane private credit has been a stellar performer for private markets, with private credit 10-year annualized time-weighted returns handily outperforming leveraged loans and bonds.
A private credit sense check
Private credit’s momentum, however, was firmly checked in the first half of 2026 as the industry encountered a series of concurrent challenges. The year began with investors increasingly anxious about the quality of private credit underwriting after the high-profile defaults of auto-sector lender Tricolor and car parts business First Brands. Senior bankers warned that private debt’s exposure to these defaults was a red flag, with more distressed credits likely to emerge the year ahead.
Credit quality fears were exacerbated early in 2026 when US$300 billion was wiped off the value of technology stocks following the release of agentic AI tools with the potential to disrupt software-as-a-service (SaaS) business models.
Given that software accounts for more than a fifth of private credit portfolios, according to JP Morgan (rising to around 40% when including broader tech and business services companies), the software valuation reset hit investor confidence in private credit especially hard.
This dip in confidence manifested most prominently in a surge of redemption requests from investors in private credit business development companies (BDCs), publicly traded investment vehicles that allow institutions and individual investors to invest in private credit assets.
Managers operating some of the biggest private credit BDCs faced huge redemption requests – ranging from 20% to 41% – forcing managers to either sell assets to meet surging redemption requests, or gate funds and cap quarterly redemption requests. According to the FT, wealthy investors put in requests to withdraw more than US$20 billion from the biggest private credit funds in Q1 2026.
More sizeable withdrawal requests are expected in the second quarter too, as fears about AI disruption and portfolio credit quality persist. The persistent negative mood around BDCs has seen the S&P BDC post negative one-year returns of 22.94%.
Separating headlines from reality
Faced with multi-billion-dollar redemption requests, doubts around underwriting quality, and exposure to AI disruption, private credit has been under severe pressure so far in 2026.
Constant bleak headlines about the asset class’s prospects, however, have obscured the reality of its resilience. Private credit has undoubtedly frayed at the edges in recent months, but it hasn’t cracked, even though the prevailing narrative around asset class has suggested otherwise.
Trailing twelve-month default rates for direct lending, for example, only registered 1.5% at the end of January, superior to leveraged loans (3.7%) and high yield bonds (2%), according to KBRA. Direct lending implied recovery rates and average loss given defaults also outperformed leveraged loans and bonds. KBRA analysis also highlighted the quality of existing portfolios, with median interest coverage ratios (a measure for how easily borrowers can pay debt interest) improving from 1.5% to 1.6% in Q1 2026.
These datapoints indicated that general assumptions about poor underwriting across all private debt portfolios have been overblown. Pockets of risk and distress have been uncovered in some segments of the market, but on the whole private credit has held up well.
Further evidence for the quality of private credit portfolios has been highlighted (of all places) in the BDC market, where managers have sold loans to meet redemptions without having to swallow discounts to trade the assets.
For example, direct lending assets that were sold by managers to meet redemption requests in early 2026 generally traded at or close to par value, indicating that institutional buyers retained confidence in the underlying quality of the loans. These transactions suggest that concerns about widespread underwriting weakness may be overstated, as sophisticated investors have continued to acquire private credit assets at only modest discounts.
The gap between redemption requests and the liquidity managers are able to unlock to meet those requests is more a reflection of private credit’s inherent illiquidity rather than the underlying credit quality.
Hightower Advisers highlights that unwinding illiquid private loans involves time and cost, leaving managers having to find a delicate balance between meeting redemption requests and maintaining portfolio integrity for existing investors.
There is no value in selling down large portions of portfolios at a low point in the cycle, and the expectation is that managers will move to spread redemptions out over time to balance investor requests for liquidity with taking time to hold assets through a volatile cycle and protect portfolio value.
This could see redemption requests remain a feature of the market for several quarters as they work through the system.
Private credit to keep delivering
Looking ahead to the rest of the year and into 2027, private credit not nearly as stressed as press coverage has suggested.
Portfolios are holding up impressively in a highly challenging and complex market. Private credit also continues to outshine other fixed income asset classes. Yields to maturity for newly issued direct lending deals are sitting at around 9.3% according to JP Morgan figures, versus 7.7% for syndicated loans and 6.9% for high yield bonds.
Private credit also remains well capitalized. Inflows into publicly traded private credit BDCs are expected to slow as first-half market disruption washes through the system, but institutional appetite for private credit funds is as strong as ever, with first quarter closed-end private credit fundraising reaching a record high of close to US$100 billion, according to Private Debt Investor.
Private credit has had more than its fair share of challenges in 2026, but even through this tough period the asset class has shown that resilience across cycles remains is defining feature.
Real Estate:
2026 H1 in Review
Real estate H1 highlights
- Real estate deal activity and fundraising showed resilience in H1 2026, despite a highly disruptive geopolitical backdrop.
- Performance across the asset class was uneven, with asset selection and operational expertise emerging as the main drivers of returns.
- AI continued to reshape real estate, accelerating data center investment and disrupting the office and warehousing segments.
- Capital flows into value-add real estate funds surged, reflecting investor interest in managers pursuing active, operationally-driven strategies.
Maximilian Dambax
Global Head of Real Assets
Resilience amid uncertainty
Real estate investors began 2026 in an optimistic mood, expecting to build on momentum from the second half of 2025 when select markets showed encouraging signs of recovery.
The Iran conflict cast a shadow over building optimism, as rising oil prices increased the chances of inflation and interest rate hikes, with potentially negative impacts on property valuations.
Real estate investors and dealmakers, however, have responded to another round of geopolitical dislocation with relative calm.
Direct real estate deal value reached US$216 billion in Q1 2026, up 18% year-on-year, according to JLL figures. Cross-border deal activity accounted for US$55 billion of this total, the best quarter for international real estate transaction volumes since 2022, highlighting the resilience of real estate deal flow.
Real estate fundraising proved more challenging, falling 50% year-on-year in Q1 2026 to US$43.96 billion, according to PERE figures.
First quarter numbers for 2026, however, were up against tough Q1 2025 comparables, when two mega-fundraises by Blackstone and Brookfield alone contributed US$35.5 billion of the Q1 2025 total. When figures are adjusted to take account of these outlier closes, the drop in Q1 2026 fundraising narrows. The first three months of 2026 have also surpassed 2023 and 2024 Q1 totals, signaling an improving market, despite recent macro disruption.
A selective market
Steady deal activity and relatively stable fundraising, however, do not signal a broad-based real estate rally.
The recovery is real, and the asset class is enjoying more stability after navigating compounding headwinds, including the post-pandemic office vacancies, the ongoing displacement of physical retail by e-commerce, geopolitical tariff pressures, and a persistently elevated interest rate environment.
But the rebound is also uneven, and this is fundamentally changing the way investors and managers generate their returns.
Real estate has come through a benign cycle where low interest rates and sustained capital rate compression boosted returns, UBS notes. These tailwinds have now faded, and in the current cycle, performance will be determined by skilled asset selection, informed underwriting, and operational capability.
In today’s evolving market environment, investors and managers can no longer assume that superior asset quality in a prime location will be sufficient to drive long-term returns.
Successful dealmakers will be the ones who can anticipate whether assets can meet the needs of future tenants and adapt to reconfiguring supply chains that prioritize domestic manufacturing, according to UBS.
The importance of evidencing genuine operational real estate capability is already influencing fundraising trends. Value-add strategies (where managers buy underperforming properties and increase value through renovations and operating improvements) accounted for 56% of capital raised in Q1 2026, more than triple the amount raised by the next largest strategy by value, according to PERE. This represents the highest share of value-add fundraising since 2021.
AI transforming an asset class
The importance of operational real estate expertise is further underscored by the effect of AI on the real estate sector, both directly, in areas like digital infrastructure, and indirectly in real estate categories like warehousing, logistics and offices.
The most visible impact of AI on real estate is the construction of data centers to run AI technology. JLL estimates that data center capacity will have to double by 2030 to generate the computing power required to meet AI usage demand. This will require investment of up to US$3 trillion.
The forecast demand for compute capacity has been a key driver of real estate M&A and fundraising, with data center strategies accounting for a quarter of real estate fundraising in Q1 2026, according to PERE.
Investors are deploying capital towards strategies where operational improvement, not asset appreciation or market momentum, is the primary driver of performance, reflecting a recognition that future returns will derive from active management, not market conditions.
Disruption beyond data centers
Indeed, AI’s influence on real estate extends well beyond data centers.
Office sector investors, for example, have been monitoring the impact of AI on office vacancy rates closely.
If AI does lead to significant productivity gains and headcount reductions, there will be an impact on an office sector that is still adjusting to post-Covid working practices.
According to Moody’s figures reported by Axios, employees in the US are spending around a quarter of their working hours working from home, up from just 7% pre-pandemic. Even though companies have pushed staff to return to the office, office vacancies climbed to a record high of 21% in the US in Q1 2026. AI’s potential impact on the workforce is another factor that is holding back demand for office space, although in some cities demand from AI-led companies is boosting office demand. According to CBRE, AI companies have taken up around 1.5m square feet of traditional office space in central London, most of it since 2022. AI now accounts for more than a third (34%) of technology industry office demand – up from just a 4% share in 2015.
Understanding the impact of AI and changing working patterns on office real estate will demand operational insight, as investors aim to protect portfolios against downside risk, but also take advantage of upside opportunities as office dynamics shift.
An operational lens will be equally essential in logistics and warehousing. Vacancy rates for logistics assets are stabilizing across all regions, according to JLL, and higher value manufacturing, increasing defense spending and ongoing e-commerce growth are all positive drivers of long-term logistics demand. Asset selection will be crucial to tap into these specific growth drivers.
The definition of an attractive asset is being fundamentally redefined by occupier demand. Tenants are no longer evaluating real estate on the basis oflocation alone. Tenants increasingly want to customize sites and are looking for assets that can accommodate future requirements, such as automation and robotics, and have the necessary grid connections to power these technologies. For owners and investors, meeting this evolving occupier mandate will be central to sustaining asset relevance and long-term performance.
Ongoing change against a stabilizing backdrop
Looking ahead to the second half of 2026, the geopolitical picture is improving following progress in negotiations to end the war in Iran. Oil prices have come down as an end to the conflict has come into view, reducing inflationary pressures and improving the interest rate outlook.
These are meaningful and timely developments for a real estate sector that will be aiming to rebuild momentum and confidence after stepping back from deals and investment when the Iran conflict first escalated.
But while a stabilizing macroeconomic backdrop may ease decision-making for real estate dealmakers, it will not determine success in a sector that is still in a phase of long-term structural transformation. Operational expertise and disciplined asset selection, rather than low interest rates and rising asset valuations, are now the main drivers of performance in a sector that has fundamentally changed following the pandemic and will continue to evolve as AI changes the way people work,live, and ultimately consume space.
Infrastructure:
2026 H1 in Review
Infrastructure H1 highlights
- Private infrastructure is consistently generating returns in the low-digit teens, despite a tumultuous macroeconomic backdrop.
- Investors are increasing allocations to the asset class, seeking a mix of predictable growth and protection against downside risk.
- The AI boom is driving huge growth in data centers and digital infrastructure.
- AI, as well as advanced manufacturing, electric vehicles and air conditioning, is also opening growth opportunities for private infrastructure in power and electricity assets.
- A distribution backlog is the biggest challenge facing the otherwise resilient private infrastructure space.
- Investors are leaning into infrastructure debt and infrastructure secondaries to expedite distributions in infrastructure portfolios.
Maximilian Dambax
Global Head of Real Assets
Infrastructure proves resillient
In a volatile first half of 2026 infrastructure assets distinguished themselves as a source of resilient performance and a buffer against downside risk in turbulent markets.
Over three, five, and ten-year time horizons private infrastructure has posted gross returns in the 10% to 13% range, outperforming listed infrastructure and global bonds, according to CBRE figures.
The asset class has delivered these mid-teen returns with minimal downside risk. Since 2011, there has not been a single five-year period where private infrastructure has lost money, according to Hamilton Lane.
Investors have taken note and allocated capital accordingly. Private infrastructure fundraising reached an all-time annual high of US$289 billion in 2026, according to Infrastructure Investor.
Fundraising did slow in Q1 2026, coming in at US$26.4 billion, down from US$67.5 billion in Q1 2025 and US$39.2 billion in Q1 2024, but private infrastructure assets under management (AUM) remain close to record highs of US$1.6 trillion, and steady inflows into infrastructure funds are anticipated through the second half of the year.
Digital infrastructure drives performance
Soaring demand for computing capacity to power the artificial intelligence (AI) boom remains the single biggest driver of overall infrastructure performance.
Consumption of tokens (the fundamental units of data large language models use to process and generate text) is expected to increase 24-fold by 2030 as use of agentic AI tools, which perform tasks autonomously, ramps up, according to Goldman Sachs.
This will underpin ongoing demand for investment in data centers and associated digital infrastructure, including 5G towers and fiber networks. BlackRock’s base case forecasts predict that data center load capacity will nearly double by 2030 from 2025 levels to meet demand.
Private infrastructure capital is emerging as an essential financing force behind the accelerating build-out of the AI infrastructure, and the sector is unlocking substantial pipelines of data center investment opportunities for managers to pursue.
In the US, for example, private capital investment in data centers has more than tripled from previous highs to reach US$45.70 billion, and now accounts for 72% of overall US data center investment, according to S&P.
Power play
The AI buildout is also spurring investment in power and electricity infrastructure. Data centers require large amounts of power to run and electricity demand from AI-focused data centers climbed by 50% in 2025, according to the International Energy Agency (IEA).
Advances in AI data center architecture and chip technology have delivered significant gains in AI energy efficiency, but this has been offset by ever more sophisticated – and energy consumptive – AI applications. The IEA forecasts that this will see data center electricity demand double between 2025 and 2030, reaching 950 TWh.
Data center buildouts are not the only factor driving up demand for electricity. Advanced manufacturing, the accelerating adoption of electric vehicles and climate-controlled systems are also pushing up electricity consumption.
This is not only driving up demand for power generation capacity, but also for grid investment. The IEA estimates that annual grid investment will have to increase by 50% by 2030 to meet forecast electricity demand.
Geopolitical conflict and energy security concerns are also contributing to investment opportunities in energy infrastructure. Countries importing hydrocarbons are home to around 70% of the global population, according to BlackRock, and are boosting investment into assets that diversify the energy mix and secure “home-grown” supply, such as renewables and nuclear.
Liquidity backlog lingers
Momentum behind private infrastructure fundraising and dealmaking is building, but the asset class also faces challenges.
As has been the case across all private markets asset classes, liquidity bottlenecks have disrupted the cadence and volume of distributions to private infrastructure investors. Infrastructure investments do typically have longer investment timelines than other alternative assets, such as buyouts and growth capital, but even when this is taken into account, private infrastructure hold periods are extending well beyond what investors anticipated.
According to Hamilton Lane, the number of years it takes to liquidate private infrastructure assets came in at around 10 years in 2025, the longest period on record since 2000.
The slow pace of distributions is reconfiguring investor priorities, forcing managers to adapt their strategies to deliver what investors want.
Liquidity is the priority, and investors are favoring infrastructure categories that offer clearer and more credible pathways to liquidity against an uncertain market backdrop.
Mid-market infrastructure has attracted growing investor attention, as smaller assets, are easier to exit in downcycles.
Signs of growth in investor appetite for exposure to infrastructure debt and infrastructure secondaries further underscore the premium placed on liquidity. Fundraising for infrastructure debt nearly doubled from Q1 2025 levels in Q1 2026, according to Infrastructure Investor. Infrastructure secondaries fundraising, meanwhile, used to make a fractional contribution to overall infrastructure fundraising, but now accounts for around 8% of total takings.
The long-term fundamentals underlying the investment case for private infrastructure remain largely intact and compelling, but the strategies investors are implementing to build exposure to the asset class are evolving.
A cornerstone component of portfolios
The performance and resilience of private infrastructure through a volatile cycle are changing the way investors view the asset class.
Traditionally positioned as a defensive asset class designed to generate yield, infrastructure is evolving into an allocation that can also generate growth.
Core infrastructure categories, including transport, roads, ports and utilities, continue to give investors stability and predictable cash flows. This stability has been complemented by upside opportunity, as demand for data centers, and the electricity to power them, soars.
In an uncertain world, private infrastructure has become an essential component of a well-constructed institutional portfolio, rather than a niche add-on.
