Private Markets Show Selective Recovery Amid Challenges
Private markets enter the coming year with a mix of renewed momentum amidst persistent structural challenges, reflecting an ecosystem still recalibrating after several years of excessive capital raising, softening performance relative to public markets, weak portfolio company fundamentals and reduced distributions to investors. Across buyout, venture and real assets, we see selective normalization—and a recovery that is real but uneven, favoring high-quality assets and capable managers, not large, branded asset gatherers.
Private markets themselves are diverse. Trends in one area, such as venture capital, differ from those in others. For investors, it is as important to understand the nuanced dynamics within each investment as not to overvalue these homogenized private investments.
Buyout: Improving Activity, Disciplined Capital and a Clear Flight to Quality
The buyout market is emerging from a subdued few years with hopeful signs of improvement. U.S. private equity deal value is up sharply, supported by stabilizing financing markets and a gradual reopening of exit pathways. While fundraising remains under pressure for a second consecutive year, the contraction in capital supply is creating a more valuation-disciplined environment. Multiples have eased from 2024 highs but remain elevated relative to long-term averages, underscoring the premium placed on durable, cash-generative businesses.
Leverage levels remain below pre-2023 norms due to higher interest rates, but with yields expected to trend lower, debt capacity could expand in 2026 for the right businesses, potentially unlocking transaction activity once again. Exit markets are also showing signs of healing, and secondary markets, particularly GP-led continuation vehicles, have become a mainstream liquidity channel, accounting for 35% of exit proceeds in the first half of 2025.
The environment clearly rewards manager discipline and operational value creation. We continue to see lower-middle-market buyout strategies, with more attractive entry points and broader exit optionality, as particularly well-positioned.
Venture Capital: A Concentrated Rebound Driven by AI, With Persistent Liquidity Friction
Venture capital is experiencing a selective recovery, not a broad-based resurgence. Deal value remains high, but activity is increasingly concentrated. AI-related investments account for roughly two-thirds of all venture dollars, and unicorns capture more than half of the capital raised. Mega rounds for OpenAI, Anthropic, xAI, and Databricks illustrate the gravitational pull toward perceived category winners.
However, fundraising continues to contract. The middle of the venture market has hollowed out, leaving a barbell of mega platforms at one end and specialist early-stage managers at the other. Despite the fundraising malaise, valuations have surged to decade highs across nearly all stages, reflecting intense competition for a narrow set of the most desirable companies.
Exit markets are showing early signs of life. The IPO window is reopening, with 176 offerings last year and more than $30 billion in proceeds. Yet, public market realities for similar companies remain sobering: revenue multiples have compressed, growth rates are lower, and roughly half of recent tech IPOs have priced below their last private round.
The coming year will likely continue this pattern of high dispersion, where disciplined investors with access to the best founders and companies outperform amid elevated dispersion.
Real Assets: Stabilization, Selective Strength and the Return of Energy Security
Real assets present a bifurcated picture. In the natural resources sector, the narrative has shifted from pure decarbonization to a more balanced focus on energy security, including AI-driven power demand. Oil and gas fundraising has rebounded, and prices have stabilized in a profitable yet economically manageable range. M&A activity has normalized after the megamerger wave of 2023–2024, with buyers increasingly selective amid slightly lower crude prices.
Real estate remains challenged by high interest rates and still-challenging fundamentals in some sectors, but there are selective and early signs of stabilization. Industrial and senior housing exhibit strong fundamentals. Retail is benefiting from tight supply and Sun Belt demand, and data centers are experiencing record-low vacancy driven by hyperscale AI needs. Multifamily and office remain stressed but offer pockets of idiosyncratic opportunity for operationally skilled managers.
The Bottom Line
Across private markets, we are approaching private markets with cautious optimism and our usual selectivity. We see improving liquidity, accelerated innovation and discipline returning to valuations – in some areas. For investors, success will hinge on manager selection and selectivity, which favor deep networks and strong reputations to gain access to the best opportunities.