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.
