(HedgeCo.Net) Private equity entered 2026 with something it hasn’t had in years: visibility. After a period defined by inflation shock, rate volatility, a frozen IPO window, and a stubborn buyer–seller standoff, the “weather” in private markets has improved. Dealmaking returned in 2025 with real force—buyouts surged, exits rebounded, and IPOs reemerged—and the fog that obscured pricing, financing, and exit routes began to burn off.
But McKinsey’s Global Private Markets Report 2026 delivers a blunt message: better visibility doesn’t mean easier driving. It means you can finally see the road clearly—and the road is steeper, more technical, and less forgiving.
The report’s central argument is not that private equity has lost relevance. It’s that the industry is maturing. What once looked like a cycle business—timing entry and exit with a tailwind of cheap leverage and expanding multiples—now looks more like a capabilities business. Success depends less on “being in PE” and more on the specific choices and institutional muscles firms build: disciplined underwriting, operational value creation, leadership, and liquidity engineering through longer holding periods.
This is the new terrain.
And for general partners (GPs), limited partners (LPs), and PE-backed management teams alike, the implications are structural—affecting returns, fundraising, exit strategy, portfolio construction, and the competitive balance between scaled platforms and smaller managers.
What follows is a deep, practical breakdown of the report’s core findings—organized around the four stakeholder groups McKinsey emphasizes: dealmakers, operators, fundraisers, and LPs—and why the next era of private equity will reward a different kind of excellence than the last.
1) The 2025 Rebound Was Real—But the Industry’s “Return Engine” Has Changed
Start with the headline: deal activity improved. Global private equity deal value rebounded meaningfully in 2025; McKinsey estimates private equity deal value increased 19% to $2.6 trillion, with global buyout deal value across all sizes hitting nearly $1.8 trillion, up 20% year over year.
At the same time, the exit environment thawed. Exits rose; IPOs reappeared. But the improvement was partial—and the backlog problem remains central.
The critical shift is this: the industry’s old return levers are weaker. McKinsey, citing analysis by StepStone Group, notes that for deals done between 2010 and 2022, leverage and multiple expansion accounted for 59% of returns—with the remaining portion coming from revenue growth and margin expansion (net of balance-sheet actions).
That return mix is the core “before and after” picture.
When interest rates were falling, debt was abundant, and public market multiples were expanding, private equity could often rely on structural wind at its back. Today, even as the market stabilizes, the report argues those tailwinds are spent.
This doesn’t mean returns are doomed. It means the source of returns is different.
McKinsey’s framing is direct: operational value creation must do more of the work—and increasingly becomes the primary source of alpha.
That changes everything: diligence, post-close execution, talent strategy, portfolio governance, and what LPs should demand from managers.
2) Bigger Deals Are Back—And Quality Is Getting More Expensive
The “rebound” in deal value wasn’t driven by more deals; it was driven by bigger deals at higher prices.
McKinsey highlights that the increase in deal value came in large part because acquirers were paying more, not because they were doing more transactions. And it points to an unmistakable data point: median EBITDA multiples for buyout deals hit a record 11.8x in 2025, edging past the prior high.
The report links rising multiples to scarcity and deployment pressure. Quality assets remain scarce; scaled, resilient businesses command premiums. Meanwhile, firms are sitting on aging capital that must be put to work.
McKinsey estimates that about 40% of dry powder available for deployment has been available for the past two years, a level it notes is materially above longer-run averages.
This dynamic—scarce quality plus abundant capital—produces a market where “buying quality” is increasingly a competitive bidding process. And bidding processes at record multiples intensify the need for a new discipline: you can’t simply pay up and assume the exit market will reward you with a higher multiple later.
McKinsey explicitly warns that in this terrain, purchase-price discipline becomes more critical, and underwriting must assume the possibility that the exit market remains selective.
In practical terms, this means:
- entry multiples can’t be justified by “the market will normalize” alone;
- operational improvement has to be underwritten as real, not aspirational;
- and value creation must be integrated with exit readiness from day one.
3) Exits Improved—But They Barely Dented the Backlog
If 2025 brought better deal activity and more exits, why does the report still sound cautious?
Because the inventory overhang remains enormous—and it’s getting older.
McKinsey estimates that more than 16,000 companies globally have been held for more than four years, representing 52% of total buyout-backed inventory (the highest on record).
It also notes that the typical portfolio company is now held for more than six and a half years, and that average holding periods of 6.6 years remain above historical norms.
This is the “tougher terrain” in one statistic: time.
Longer holding periods do two things simultaneously:
- They suppress cash distributions and constrain LP liquidity.
- They erode IRRs through time decay—unless value creation is strong enough to offset the drag.
The report emphasizes that even with an exit rebound, the backlog barely moved. It notes that PE-backed exit value as a percentage of total new buyouts reached 68% in 2025—the highest since 2021—yet still below longer-run norms.
This aligns with a broader industry narrative: a growing “exit logjam,” with sponsors holding large inventories of unsold assets and relying increasingly on alternative liquidity routes. The Financial Times recently highlighted record levels of unsold private equity investments and the broader struggle to sell companies amid macro uncertainty.
So the exit market has improved, but not enough to “reset the system.”
4) Liquidity Engineering Is No Longer a Niche—It’s Now Core Market Structure
One of the most important insights in the report is about what used to be labeled “creative solutions.”
McKinsey argues that tools that looked niche after the 2020–2021 boom are now becoming enduring features of the private equity landscape:
- secondaries
- continuation vehicles
- NAV lending
This is market-structure evolution.
Why? Because LPs want liquidity and distributions, and traditional exits have been inconsistent. When cash outflows slow, pressure builds across the system: LPs have less cash to recycle, fewer re-ups, more denominator-effect stress, and greater demand for partial liquidity. That demand becomes a permanent commercial reality for GPs.
McKinsey notes secondaries growth explicitly: secondary market traded volume increased 48% in 2025 and secondary fundraising rose as well—driven by LPs’ desire to realize returns and rebalance portfolios.
This isn’t merely an “alternative channel.” It’s a structural safety valve.
For GPs, this means:
- You must understand secondaries and continuation options as part of the toolkit.
- You must anticipate how financing tools like NAV lending influence portfolio risk and flexibility.
- And you must communicate these tools transparently, because LP scrutiny is rising.
For LPs, it means:
- Liquidity planning becomes a first-class portfolio discipline, not an afterthought.
- Private markets allocations require a more explicit policy around distributions, pacing, and secondary usage.
5) Performance: The “Modest Returns” Debate—and the Bar for Differentiation
McKinsey’s performance commentary is among the most widely cited parts of the report because it draws an uncomfortable comparison: public equities had an AI-driven surge, while PE returns looked modest in that same timeframe.
It notes that in 2025, top-quartile global buyout returns averaged about 8% (pooled IRR basis), while the S&P 500 returned 18% and MSCI World returned 22%.
That gap matters—not because private equity must beat the S&P every year, but because it shapes LP confidence and fundraising momentum in a competitive capital environment.
At the same time, McKinsey emphasizes that the top end of private equity remains powerful over longer horizons. It states that over the last ten years, top-quartile buyout funds delivered ~24% IRR, outperforming public market benchmarks over that period.
Put those together and you get the report’s core conclusion: the dispersion between “best and rest” matters more than ever.
In a maturing industry, average returns compress; capabilities determine outcomes. McKinsey says it plainly: outcomes will be shaped less by exposure to the asset class and more by deliberate choices—deal sourcing discipline, operational improvements, leadership, and the ability to operate through longer and more complex holds.
That’s what “tougher terrain” means: generic playbooks don’t clear hurdles reliably anymore.
6) Operators: Operational Value Creation Becomes the Center of Gravity
If you read only one section of the report, make it the operator chapter.
McKinsey argues that in the new era, operators are no longer supporting the thesis—they’re determining whether it works.
The report describes a transition: operational value creation must move from a late-stage acceleration tactic to an earlier, sustained execution model.
It highlights the growing expectation for comprehensive post-close value creation plans (VCPs): not generic “100-day plans,” but full-potential roadmaps that translate the investment thesis into executable initiatives, define a baseline momentum case, and build a robust execution plan to close the gap.
This is where private equity begins to resemble industrial operations more than financial engineering.
McKinsey also adds a macro layer: operators must navigate trade fragmentation, reshoring, and industrial policy that reshapes supply chains and routes to market. As holding periods lengthen, these geopolitical exposures can’t be treated as episodic shocks; they must be managed continuously.
The implication for CEOs of PE-backed companies is straightforward:
- You are in a longer-hold world.
- You need operational resilience as a real capability.
- And value creation must be measurable, continuous, and deeply integrated with the exit narrative.
The implication for GPs is even sharper:
- You can’t buy a premium asset at a premium price and “hope” the market provides multiple expansion later.
- You must create value through revenue, margin, pricing, and operational redesign—systematically.
7) Fundraising: Scale’s Gravity—and the Rise of New Capital Channels
McKinsey’s fundraising picture is nuanced. On one hand, core closed-end fundraising is described as more competitive and time-consuming.
The report breaks out regional dynamics and highlights that fundraising has been uneven:
- North America increased year on year.
- Asia-Pacific struggled.
- Europe declined (in part due to timing of large closes in prior years).
But the bigger theme is structural: scale has gravitational pull.
McKinsey notes that funds smaller than $500 million are accounting for a smaller share of fundraising than five years ago, while funds above $5 billion account for a larger share.
This is not just a fundraising detail. It’s market structure shifting toward platforms that can:
- do larger deals,
- deploy capital reliably,
- provide co-invest and bespoke solutions,
- operate across geographies and asset classes,
- and build the operational and compliance infrastructure required for new fundraising vehicles.
McKinsey also highlights the growing importance of alternative channels—including custom accounts and side deals—as a major growth engine in alternative AUM.
And it notes that semiliquid products and broader access vehicles demand new capabilities: distribution partnerships, marketing and brand, plus heightened liquidity, risk management, and compliance.
In other words: fundraising is becoming more like building a consumer-facing financial product ecosystem—especially as private markets move toward the wealth channel.
8) LPs: DPI, Liquidity, and a More Selective Era of Manager Evaluation
LP conviction remains relatively stable, but LP behavior is changing.
McKinsey reports that in its January 2026 survey of 300 global LPs, about 70% planned to maintain or increase private equity allocations.
But the criteria are sharpening.
The report underscores a major shift in what LPs care about. Historically, IRR dominated. It still does. But DPI is rising in importance, reflecting the premium on cash distributions in a longer-hold world.
McKinsey provides one of the most striking liquidity statistics in the report: distributions to AUM fell to around 6%over a recent period, versus a much higher pre-2020 average, and five-year rolling DPI as a share of AUM hit its lowest recorded level in 2025.
It explains the mechanics clearly:
- longer holds ? slower exits ? lower distributions ? suppressed DPI
- slower DPI ? reduced cash returns and reinvestment flexibility
- longer holds also erode IRR through time decay unless value creation offsets it
McKinsey also shows how performance is bifurcating by vintage: older vintages lag and newer vintages look stronger, but much of the newer-vintage strength is unrealized and could face similar pressure if exit conditions remain constrained.
So LPs aren’t leaving private equity—but they’re becoming more demanding and more selective, with a stronger emphasis on:
- realized cash returns (DPI),
- operational value creation capability,
- co-invest access and economics,
- and proof that returns can be generated without leverage and multiple expansion doing the heavy lifting.
9) The Private Equity “Sorting Moment”: Who Pulls Ahead, Who Stalls
The report repeatedly returns to one central idea: a maturing industry changes the competitive field.
In a young industry with strong tailwinds, many strategies work. In a mature industry with tougher conditions, strategies diverge—and leadership matters.
McKinsey argues that scale, specialization, and operating discipline matter more; generic strategies matter less. It expects market structure to continue changing, including through consolidation and M&A.
And it poses the right question for every stakeholder:
- For GPs: Is your vehicle built for this terrain—where alpha must be made, purchase discipline is critical, operational value creation is continuous, and resilience is nonnegotiable?
- For LPs: Which managers are equipped for longer holds and uneven exits—and which are still relying on “maps designed for smoother roads”?
This is why the report title works: the clearer view reveals the tougher ground.
10) A Practical Framework for 2026: What “Tougher Terrain” Means in Execution Terms
Here’s the report’s message translated into an operational checklist—what winning firms are building now.
For Dealmakers
- Underwrite entry price with zero expectation of multiple expansion.
- Build scenario-based exit plans that assume a selective buyer universe.
- Treat AI/data infrastructure and operating improvement as part of the deal thesis, not a future add-on.
For Operators and Portfolio CEOs
- Move to “full-potential” value creation plans with early execution.
- Make resilience (supply chain, geopolitics, pricing power, talent) central, not peripheral.
For Fundraisers
- Build distribution and brand capabilities for new channels.
- Develop governance and compliance systems fit for semi-liquid products and custom accounts.
- Accept that scale increasingly influences capital formation outcomes.
For LPs
- Evaluate managers based on how they generate returns in today’s environment, not just historic IRRs.
- Elevate DPI and liquidity planning to top-tier metrics.
- Use secondaries strategically—both as a risk management tool and a portfolio construction lever.
Conclusion: Private Equity’s Next Decade Will Reward “Made Alpha,” Not Market Tailwinds
The most important line in McKinsey’s 2026 report might be this: “Alpha is less likely to emerge from market dynamics alone. It will increasingly be made.”
That is the thesis of the new era. 2025’s rebound improved confidence and reopened markets. But the deeper structural forces—higher entry multiples, lower leverage contribution, longer holding periods, liquidity pressure, and a more sophisticated LP base—mean the old playbook can’t be relied on.
Private equity remains a powerful long-term model. Yet like any mature industry, it increasingly rewards the firms prepared to operate with discipline, depth, and real operating capability. The road is steeper—but it’s still open. And in a market defined by dispersion, the best vehicles can still pull away.