Private equity’s strategic pivot

February 2026  |  FEATURE | PRIVATE EQUITY

Financier Worldwide Magazine

February 2026 Issue

Private equity (PE) firms are undertaking a strategic pivot as they respond to market pressures, geopolitical uncertainty and ageing portfolios. With trillions in dry powder, sponsors are accelerating monetisation strategies, favouring take-private deals and sponsor-to-sponsor transactions. This shift reflects a broader recalibration of risk, valuation and exit timing. As regulatory scrutiny eases in some regions, PE firms are targeting resilient sectors such as infrastructure, energy and technology, reshaping the M&A landscape with bold, capital-intensive plays and long-term value creation strategies.

2025 in review

Against a chaotic economic and geopolitical backdrop, 2025 was a varied year for the PE industry. The first half saw continued appetite for dealmaking among PE and principal investors, despite market volatility and policy uncertainty.

According to Boston Consulting Group (BCG), PE and venture capital (VC) activity trended higher across the first three quarters of 2025. Global PE deal value rose by 38 percent compared with the same period in 2024, driven by large transactions such as the mega buyout of Electronic Arts. Technology, media and telecommunications, industrials and energy remained among the most attractive sectors.

Global fundraising for PE has slowed since the 2021 peak, reflecting a more challenging environment for attracting fresh capital. The global fundraising market saw its weakest first half since the height of the coronavirus (COVID-19) pandemic in 2020, with $383.6bn raised in H1 2025 – a decline of $80bn or 17 percent compared with H1 2024, according to Private Equity International. The amount raised puts fundraising on track for around $770bn, a 20 percent drop from the $970bn raised in 2021.

Ardian’s record-breaking Secondary Fund IX, which closed in the first quarter on $30bn, remains the biggest fund close of the year and the largest PE secondaries fund ever closed. Thoma Bravo’s latest buyout flagship, Thoma Bravo Fund XVI, was the only other fund to hit the $20bn mark in H1 2025.

North America-focused funds were the most active, raising $192.5bn and accounting for 50 percent of all capital raised. Europe-focused funds accounted for 15 percent of closures (up from 9 percent in 2024). Asia-Pacific saw a slight drop (4 percent, down from 8 percent).

Despite fundraising challenges, PE firms continue to sit on substantial levels of dry powder. According to BCG, firms held approximately $2 trillion in undeployed capital as of early October 2025, pressurising investors to deploy resources strategically.

Continuation funds

Exits rebounded somewhat in 2025 after a tumultuous decade. Against a backdrop of low financing costs, firms experienced record transaction volumes and steady exit opportunities. However, as the economic outlook changed, these opportunities began to evaporate. In a high-rate environment, exit options narrowed, financing became more expensive and holding periods lengthened. According to McKinsey, in 2024, average buyout holding periods rose to 6.7 years from a two-decade average of 5.7 years, with the exit backlog bigger than at any point since 2005.

In this environment, continuation funds have emerged as valuable, albeit controversial tools. Once niche, they have become mainstream. For some observers, their rise reflects a structural evolution in the PE space rather than a temporary adjustment. These funds enable liquidity in a capital-constrained world while testing the boundaries of transparency and governance.

Continuation funds allow a PE group to sell assets from one of its funds to a newer fund also managed by the firm. According to Jefferies, in the first six months of 2025, PE firms used continuation funds to exit $41bn of investments – equal to a record 19 percent of all industry sales and 60 percent higher than the first half of 2024. Their expanding use has come amid a prolonged downturn in initial public offerings (IPOs) and takeover activity, which has squeezed cash returned to investors.

A typical continuation fund allows investors either to roll over their investment or to cash out. For PE sponsors, such funds enable firms to keep portfolio companies beyond the typical 10-year life of a fund, crystallise performance fees and collect management fees from the new fund buying the investments. They have been embraced by large PE groups, including Vista Equity Partners, New Mountain Capital and Inflexion.

However, continuation funds have not been embraced by all. According to Bain & Co, almost two-thirds of investors in PE funds would prefer groups to sell investments the conventional way – through sales to companies or IPOs – rather than continuation funds, which were preferred by just one-sixth of investors. Critics argue they are a tactic for recycling capital. Although their popularity has increased thanks to the challenging exit landscape, some institutional investors are opting out.

In the future, continuation funds are likely to increase in popularity as a means for financial sponsors to maintain ownership of their best investments, though the structure is also used to house less well-performing assets. According to Schroders Capital, the size of the continuation investment market could quadruple from around $70bn to more than $300bn in the next decade.

Schroders notes several structural factors driving growth, reflecting a combination of long-term market evolution and short-term dynamics. As PE firms look to unlock further value amid a challenging exit environment, continued ownership beyond the traditional holding period is emerging as a powerful catalyst for transformation. Rather than requiring a change in ownership, continuation investments allow firms to sustain and accelerate growth initiatives within existing portfolios. These vehicles offer a cost-effective route to ongoing value creation, providing investors with more predictable returns and faster liquidity than conventional buyouts.

Navigating exits

While continuation funds look set to grow, their use may decrease should the wider exit landscape improve. Recently, some firms have moved decisively to reposition portfolios and crystallise returns. Exits have begun to pick up, starting to clear a backlog that developed over previous years.

According to S&P Global Market Intelligence, there was a notable shift toward smaller deals in the third quarter of 2025, coinciding with one of the busiest quarters for global PE and VC exit activity in nearly four years. The number of PE and VC exits globally reached 817 in the third quarter, a more than 4 percent increase from 784 in the second quarter. This increase marked the second-highest quarterly exit total recorded since the fourth quarter of 2021.

The first three quarters of 2025 saw 2360 PE and VC exits recorded globally, with the industry on track to produce more exits in 2025 than the 2991 exits recorded in 2024. However, exit value, which totalled $286bn to the end of September 2025, was still well short of the $473bn recorded in 2024 and on pace for its lowest total in at least four years. Many fund managers are lowering exit return expectations for portfolio companies, largely due to ongoing economic challenges. Portfolio companies, like the wider global economy, have experienced years of elevated interest rates, rising global trade tensions and macroeconomic uncertainty.

After an extended period of constrained realisations, general partners are now actively bringing assets to market. This acceleration is driven by factors including limited partners’ growing need for liquidity after years of limited distributions, the expiry of fund terms and refinancing deadlines, and a gradual improvement in market sentiment. Furthermore, debt markets have reopened, strategic buyers are re-engaging and valuation expectations, while still cautious, are gradually converging.

Dealmaking

While fundraising and exits have undergone significant changes, dealmaking is also at a key inflection point. The industry is increasingly impacted by factors such as the growth of artificial intelligence (AI), the emergence of sovereign wealth funds (SWFs) and the importance of change management.

2025 was a significant year for dealmaking. According to KPMG, across the first three quarters of 2025, global PE deal volume was $1.5 trillion – on pace to reach a four-year high should investment remain steady throughout the remaining quarter. The buoyant investment is notable given the decline in deal volume – from 15,083 deals in the first three quarters of 2024 to 13,574 in the same period of 2025.

One key area of investment has been infrastructure. According to KPMG, at the end of Q3 2025, PE investment in infrastructure and transportation was already $126.3bn, up markedly from $99.4bn and $98.7bn recorded during 2023 and 2024 respectively.

Digital infrastructure has become a major focus, with high-growth areas such as energy transition attracting significant investment. Data centre investments, driven by AI and cloud computing demands, have been particularly strong, with a record $50bn allocated to the sector in 2024, according to BCG, up from just $11bn in 2020. Despite a slowdown in deal flow across most infrastructure asset classes, investors remain optimistic about long-term opportunities in core sectors such as energy, transport and logistics.

The expansion of AI and other advanced technologies requires massive investment in data centres, and PE investment is key to these developments. Between 2021 and 2024, PE firms invested more than $100bn in data centre projects, according to EY. Presently, data centres account for more than 2 percent of global electricity usage and are expected to account for 3 to 4 percent by the end of the decade.

Momentum in infrastructure funding continued into 2025. According to CBRE, private infrastructure fundraising in Q1 2025 recorded the third-highest first-quarter fundraising in the past five years, reaching $48bn – indicative of renewed investor appetite and growing confidence in the asset class.

Opportunities will exist in both traditional and renewable power sources, and PE is expected to play a major role in this space. Continued PE growth in infrastructure investment is likely in the coming years, particularly in sectors driven by AI and digital transformation, as governments seek new ways to bridge infrastructure funding gaps, fostering numerous co-investment opportunities.

SWFs are also increasingly likely to impact the PE space in the coming years, with considerable growth of SWF activity in the US expected. Increasingly, PE firms are seeking partnerships with SWFs, whose assets are estimated to reach $18 trillion by 2030, according to Deloitte. In 2024, SWFs invested nearly $30bn in PE deals for US companies, taking their cumulative deployment since 2018 to more than $367bn. The $55bn acquisition of video game giant Electronic Arts by PE firm Silver Lake Partners, Saudi Arabia’s SWF PIF and Affinity Partners may be the template for future collaboration between PE and SWFs.

Going forward, PE will continue to adapt and evolve amid changing and challenging economic conditions. Driven by a focus on AI and infrastructure, cautious optimism is emerging in the PE space.

The next phase of growth will likely be shaped by technological integration and sustainability imperatives. AI is not only transforming deal sourcing and due diligence but also enabling operational efficiencies across portfolio companies. At the same time, infrastructure investment is becoming a strategic priority as governments seek private capital to bridge funding gaps in energy transition and digital connectivity.

These trends point to a future where PE firms act as catalysts for innovation, partnering with SWFs and institutional investors to finance large-scale projects. While volatility and regulatory complexity remain, firms that embrace data-driven decision making and long term value creation will be best positioned to thrive. The industry’s ability to balance agility with discipline will define its success in the decade ahead.

© Financier Worldwide

BY

Richard Summerfield