Private Equity Market Update: Q2-2026

At the same time, as financing conditions have become less supportive, market uncertainty has increased, and portfolio valuations have come under greater scrutiny. As a result, investors are placing greater emphasis on earnings growth, operational improvement and successful realizations as drivers of returns. In contrast to the low-interest-rate environment of the prior decade, when multiple expansion provided a meaningful tailwind to performance, NAV growth is becoming increasingly dependent on the underlying performance of portfolio companies and sponsor’s ability to create value through active ownership. This places greater emphasis on sponsor’s ability to drive revenue growth, improve profitability and execute strategic priorities at the portfolio company level.

Liquidity and distributions remain a key focus for investors. A multi-year slowdown in exit activity has left significant unrealized value across private equity portfolios, while LPs continue to seek evidence that reported valuations can translate into realized outcomes. In this environment, GPs that can create value at the company level and return capital to investors are expected to remain well-positioned.

Mid-market private equity has historically generated a greater share of returns through company growth and a smaller share through leverage, a return profile that may be increasingly attractive in today’s environment.

As the private equity industry navigates a more challenging financing and valuation environment, the sources of value creation have become increasingly important. The mid-market remains particularly well-positioned in this environment. Historically, mid-market private equity investments, defined as investments with total enterprise value between US$0.1 billion and US$1.5 billion, have generated higher multiples on invested capital (MOICs) than large- and mega-cap buyouts, driven by stronger underlying business growth and a lower reliance on financial engineering (see Figure 2). Based on an analysis of 3,500+ transactions, the mid-market has delivered more value from revenue growth and less from leverage. Based on each factor’s contribution to total value creation, revenue growth represents the largest driver of value creation in the mid-market (44% vs. 36%), while leverage contributes a smaller share of returns (29% vs. 39%).

Smaller businesses often provide greater opportunities for operational improvements, professionalization of management and market expansion. As debt financing becomes more expensive and multiple expansion less predictable, the ability to execute a disciplined value creation playbook is expected to remain a key differentiator. This reinforces the attractiveness of the mid-market segment for investors seeking exposure to company-level growth and active ownership.

The secondaries market is playing an increasingly important role in private equity liquidity generation and portfolio management, with transaction volume increasing ~19% year over year, during the first half of 2026.

Investor demand for liquidity generation and portfolio management continued to support robust secondaries activity during the first half of 2026. Transaction volumes increased ~19% year over year, led by GP-led transactions, which increased ~35% year over year (see Figure 3).