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Creating value in uncertain times: private equity’s next evolution
After two years of subdued activity, private equity (PE) is beginning to regain its footing. Easing interest rates are restoring confidence, narrowing valuation gaps, and supporting a gradual return of liquidity to the market. Yet the fundamentals of the PE business model are shifting. Sourcing and exit discipline remain key differentiators, but the ability to truly create value is increasingly critical. Investors are growing ever more selective, backing fewer asset managers and focusing on those with clear strategies, sector depth, and a proven ability to create value.
Deal activity is improving, in part due to creative approaches to capital deployment, from carve-outs to take privates to secondary investments. In the first half of 2025, US private equity deal value rose roughly 8% year over year, to just over $195 billion. This put a significant dent in available capital: dry powder held by US-based PE funds dropped to about $880 billion in September 2025 from a record high $1.3 trillion in December 2024. But deal volume remains anemic, registering a slight decline in the first half of 2025. This underscores the ongoing challenge in the market: There are large deals to be done, but successfully executing them will take creativity and conviction.
Here’s what we have seen over the past year:
Fundraising slowdown. Global private equity fundraising reached about $150 billion in the second quarter of 2025, down slightly from the first quarter. Commitments to traditional commingled funds fell around 24% year over year, and U.S. fundraising is tracking roughly 40% below prior year levels.
Deployment imbalance. Deal activity is rising in value terms, but volume remains subdued. While some investors have found creative ways to deploy capital into large investments—through carve-outs, take-privates, continuation vehicles and other pathways—others have not yet done so, and will face increasing pressure from limited partners (LPs).
Liquidity lag. Rate cuts are helping, but there remains a backlog of long-hold portfolio companies, and a rebound in exits will be uneven as buyers, lenders, and limited partners recalibrate expectations. Continuation vehicles, secondaries and similar mechanisms will likely remain a pressure relief valve.
Crowded competition. More sponsors are chasing fewer high-quality assets, while sovereign wealth funds and family offices—equipped with patient, low-leverage capital—continue to expand their presence.
Innovation is imperative. Leading managers are adjusting quickly by building flexible structures, using continuation vehicles judiciously, and emphasizing operational transformation over financial engineering.
Key M&A trends set to influence private equity
The deal market is reopening, but in a more demanding form. Lower rates and improving sentiment are creating space for renewed activity, yet the industry’s underlying pressures—consolidation of capital, tighter competition, and rising investor expectations—persist.
As investors continue to weigh the advantages of private equity against public markets, infrastructure strategies, and a widening set of alternative opportunities, two broad pathways to success are emerging. For large, diversified asset managers, performance will increasingly hinge on the ability to deliver integrated capital solutions and demonstrate repeatable value creation—factors that are reinforcing a growing “flight to quality.” For mid-sized firms, this environment presents both challenge and opportunity: Those that sharpen their specialization, forge strategic partnerships, or thoughtfully diversify their offerings can regain momentum, while those that stand still risk a gradual erosion of their competitive position.
Innovation is proving decisive. The firms leading the recovery are deploying hybrid capital strategies, LP-led secondaries, and co-investment platforms to enhance liquidity and strengthen alignment with investors. They are also embedding AI and digital capabilities and operational excellence into portfolio management to drive performance from within. Finally, they are deeply focused on sectors where they can demonstrate insight and expertise. As confidence returns, success will depend less on market timing and more on disciplined execution.
What dealmakers should do
“Clearer conditions and stabilizing policy are restoring confidence. With ample capital and significant backlog, private equity is positioned for an active deal market in the near term.”
Josh Smigel,Private Equity Leader, PwC USThe bottom line: What private equity dealmakers should watch in 2026
Private equity is entering a phase of selective recovery. Conditions are improving, but leadership will depend on how firms respond and focus their attention. Those that deploy capital creatively, deliver real value, and meet rising investor expectations will shape the next cycle of growth—and redefine what success looks like in a more competitive market.
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