By Justin Partington, Global Head of Fund and Asset Managers
There’s been a recent trend of ending each year by saying, “Next year, deals will finally pick up!” I am pleased to say we’re continuing the trend this year and with good reason. While it has been a difficult few years for private markets firms, especially for exits and returning capital to LPs, data does show deal volume is returning. It’s a bit like waiting for spring after a long winter – every December we predict the thaw, but this time, the first green shoots are finally breaking through.
The value of private capital deals hit $2.3 trillion as of 30 November, putting the industry on course for the best year since 2021, according to data from Preqin. Indeed, transactions of $10 billion or more in a calendar year just hit a record high, the Financial Times reported.
Moreover, on the fund-raising side, further analysis by Preqin suggests 2025 will be the low point of the cycle and forecasts an across-the-board increase in fund inflow activity through to at least 2030. Meanwhile, a survey from Goldman Sachs found GPs were finally becoming more optimistic across strategies and the sector was poised to turn the corner heading into 2026.
With this Christmas cheer as a backdrop, here is IQ-EQ’s look at the year ahead.
Technology as a strategic engine for GP operations
AI will remain the number one discussion point for 2026. That and cybersecurity. Expect to see a real divergence in how AI tools impact private market firms’ operations. AI will increasingly support deal origination, modelling, monitoring and investor servicing, Alice Murray, Editor-in-Chief at private capital community and content platform The Line, told us, though proper data governance processes will be vital if firms are to realise the benefits.
That means investment in data stewards; individuals who are dedicated to the demanding tasks of data collection and management. The biggest friction point, Murray pointed out, remains ownership: who is responsible for data quality. Appropriate data governance will require meaningful investment in people who can manage and govern it.
More broadly, corporates will need to load up on cybersecurity tools for 2026, particularly anything that can help in the detection of deepfake attacks. Sadly, there is no shortage of media articles on companies being caught out by increasingly elaborate scams. Sometimes, it only takes one error to undo years of hard work and trust. Must-have security tools should focus on identity verification, vendor risk monitoring, zero-trust access control as well as secure data pipelines.
Liquidity and retail investors
It is no secret that liquidity tops LPs’ list of concerns. Mid-year data from Bain showed payout ratios have been trending lower and remain below their benchmark. In turn, lower distributions have fed through to longer and harder fundraising processes.
Marc Lino, Partner and Global Sustainability Lead for Financial Investors at Bain, told us that there are roughly 32,000 buyout-backed portfolio companies globally, and about half of these companies have been held for more than five years, with the average hold period now stretching to around seven years.
Going into 2026, GPs remain under pressure to return capital to LPs by any means possible. Continuation funds, secondaries sales, NAV lending all remain in focus. Expect LPs to structure their own exits through portfolio stake sales and other arrangements as their patience with GPs is tested.
There is of course one new source of liquidity and that is evergreen funds. Retail and institutional money is flowing into the structure at such a pace that Hamilton Lane forecasts that 20% of all private market capital will be held in evergreens within a decade (up from around 5% now).
The introduction of private market assets into U.S. 401(k) pension plans, as well as the roll out of ELTIF and LTAF products in Europe, all point to an upswing in evergreen flows.
It is a trend that has the potential to reshape the industry in unpredictable ways: Will an increased weighting of retail investors weaken the standing of traditional LPs? Do regulators apply more scrutiny? Will the pace of inflows outstrip proper due diligence on deal flow? This is going to be the space to watch.
Independent sponsor deals
Expect more independent sponsor deals in 2026 given the growing appetite for such transactions. The model is well established in the U.S. and is gaining followers in the UK, helped by an outflow of experienced dealmakers from established GPs. Ben Cocoracchio, a partner at Addleshaw Goddard, which is one of the leading law firms in this space, says he sees interest across the board.
“Whether that is experienced operators and investors looking to launch a new platform, individuals or teams spinning out of an established PE sponsor to establish a new strategy or established PE sponsors looking to take advantage of specific opportunities between fundraising cycles or alongside their existing blind-pool funds,” he says.
In the U.S., active sponsors have nearly doubled in five years, with conference attendance tripling, according to data from WhiteHorse Capital. One thing to watch out for with this trend is institutional LPs allocating capital specifically for independent sponsor deals, mirroring a broader LP push toward direct co-investment.
Investment strategies
Some headline data to start: While Preqin predicts year-on-year increases in alternatives AUM and dry powder for 2026, the annualised growth rates as well as IRRs have slowed compared to the 2018-2024 cycle. That being said, interest rates are trending lower in Europe and North America, which is usually beneficial to deal-making.
Secondaries AUM growth rates are forecast by Preqin to outstrip PE as both GPs and LPs seek alternative exit routes to trade sales and IPOs. Likewise for private credit and infrastructure funds, where rapid asset class maturation and opportunity set, particularly in AI-driven demand for data centres, is helping drive interest from LPs including the private wealth channel.
Expect value creation to remain the key driver for portfolio company growth as compressed exit valuations restrict other avenues for manager returns. An analysis by Moonfare showed that 71% of value created at exit now comes from revenue growth as opposed to financial engineering, the highest weighting since at least 2017. However, as Bain’s Lino points out, GPs will need much faster EBITDA growth today to deliver a target buyout return in five years than was required in the last cycle. Accelerating portfolio company performance fast out of the gates will become the rallying cry for any new investments made in 2026.
