Kerry Craig
Global Market Strategist
Adrian Wong
Global Market Strategist
Published:
Exit values have risen sharply but the number of exits tells a different story.
In Brief
- Exit values are rising, but deal activity remains concentrated in a handful of large transactions and stronger-quality assets.
- Aging portfolio companies are keeping distributions subdued and increasing the risk of valuation markdowns as holdings approach exit.
- Middle-market buyouts and secondary transactions offer the clearest opportunities as valuation gaps narrow and liquidity demand persists.
Private equity (PE) entered 2026 with optimism that the pick-up in exits experienced in 2025 would continue. Market volatility earlier in the year may have delayed the process but not derailed it, even so the recovery in exits activity has been uneven. A backlog of aging portfolio companies is likely affecting pricing and may explain why distribution rates remain subdued.
Narrowing spreads in buyer and seller valuations is creating opportunities for providers of fresh capital, particularly in the middle-market and the secondary market segments of private equity.
Exits picking up, but unevenly
A recovery in private equity requires investors to distinguish between transaction activity and value. Exit values have risen sharply but the number of exits tells a different story. The number of global private equity exits in the first half of 2026 was similar to the same period in 2025. However, exit value was much higher at USD 620billion. A handful of outsized transactions, rather than a broad-based recovery, accounted for much of the increase.
Public markets are willing to support profitable companies, those with clear growth prospects, or uniquely exposed to the secular AI theme. They are less forgiving of highly leveraged or lower-quality companies that come to market. Similarly, financing is available for attractive buyouts, although the economics of leverage are less supportive when rates are higher. The result is a higher bar for transactions and a recovery concentrated in stronger assets.
PE has an inventory problem
The reopening matters because the backlog of companies waiting to be exited has been building for years. Private equity managers invested heavily during the lower rates era, including at elevated multiples. The subsequent increase in interest rates made new financing more expensive and reduced the prices many buyers were prepared to pay. Rather than selling at valuations that would crystallize weaker returns, managers extended holding periods. Thus, the share of U.S. private equity-backed companies held for five-to-nine years has risen from 30% in 2016 to 46% in 2026. (Exhibit 1)
The holding period is directly linked to valuation risk at exit. Companies held for less than five years have historically exited above the general partners’ own valuation estimate 87% of the time. But nearly a third of companies that are held for more than 10 years exit below the portfolio valuation. As this larger five-to-nine-year-old cohort of companies moves towards exit, the risk of markdowns is likely to grow before it fades.
This matters because a normalization in exit activity should eventually support distributions, improve investors’ ability to make new commitments and reduce the pressure on private equity portfolios. This in turn can make it difficult for general partners to raise new funds. Distribution rates in U.S. private equity and venture capital remain well below long run averages. Exit activity may need to remain strong for several years, rather than several quarters, to clear the accumulated inventory.
A prolonged period of low distributions therefore raises two related questions. First, how much of the delay reflects a temporarily difficult exit market? Second, how much reflects the gap between the value at which an asset is held and the price a buyer is willing to pay?
Neither question implies that private equity portfolios face a broad valuation reckoning. Earnings growth and operational improvements can support valuations even where market multiples have fallen. In fact, the drivers of value creation in PE were already shifting from multiple expansion to revenue growth and margin expansion over the 2010s. (Exhibit 2) But the longer an asset remains unsold, the more important it becomes to understand whether the returns are being generated through underlying business performance or simply deferred exit assumptions.
Secondary and middle-market opportunities
Two areas stand out. First, the middle-market has held up better through 2026’s uneven recovery than the large-cap, financing dependent end of the buyout market, where activity has been more exposed to swings in rates and credit spreads.
This is important in an environment where the easy return drivers of the previous cycle are less likely to be repeated. A decline in interest rates could help transaction activity and financing conditions, but investors should not build their return expectations around a return to cheap debt.
Second, the secondary market remains the clearest beneficiary of the aging-portfolio dynamic. Secondary deal volume reached USD 118billion in the first half of 2026 and is on track to beat 2025’s record year. With private equity distribution rates continuing to lag, limited partners have reason to keep seeking liquidity through secondary sales, and buyers continue to find attractive entry points as a result.
Investment implications
Exit activity has improved significantly in value terms, yet a substantial inventory of mature investments remains. For existing investors, an improving exit market should gradually support distributions over time. For new investors, today’s liquidity constraints may create better entry points than were available at the peak of the previous cycle.
The most compelling opportunities lie where investors are compensated for providing scarce capital. Middle-market strategies may offer more reasonable entry valuations and greater scope for operational improvement. Similarly, the secondary market is also expanding, as liquidity pressures provide access to mature portfolios with shorter and potentially more varied paths to exit.