Recalibrating Capital for 2026
The private equity sector relies on historical performance data to guide capital allocation and investment strategy. However, as the industry moves into 2026, investment professionals recognize that retrospective data is becoming insufficient for future planning. Between December 2025 and January 2026, Bain & Company and StepStone surveyed 103 investment and investor relations professionals, primarily in North America and Europe, to capture general partner expectations for the year ahead.
The resulting data presents a clear picture of an industry undergoing a fundamental recalibration. General partners are planning for an environment with persistently high valuations, downward pressure on traditional fund economics, shifting liquidity tools, and pragmatic views on generative artificial intelligence.
The Valuation Standoff and the End of Multiple Expansion
For years, private equity returns benefited from steady increases in purchase price multiples. Going into 2026, that era appears to be pausing. According to the survey, 79% of general partners expect purchase price multiples to stay roughly where they are, plateauing at elevated levels. Only 14% anticipate increases, while just 7% expect decreases.
Without multiple expansion, general partners acknowledge they must significantly elevate their operational value-creation strategies. The high-valuation environment creates friction at deal tables. When asked about primary reasons deals failed to close in 2025, 36% of general partners pointed to seller valuation expectations, specifically noting a gap of more than 10% disagreement on price. Diligence red flags were the second most common deal killer at 33%, while competitive intensity derailed 25% of deals. Macro uncertainty accounted for only 6% of broken deals.
The Liquidity Imperative and the Maturation of Continuation Vehicles
The private equity market achieved the second-best year for exits on record in 2025, building general partner confidence. Heading into 2026, most investment professionals expect to complete more exits from flagship funds compared to the previous year. Despite this optimism, continuation vehicles have become established in the industry's liquidity toolkit. One quarter of the surveyed general partners reported initiating or completing a continuation vehicle transaction within the last 24 months. Looking forward, approximately 40% of general partners estimate they will explore a continuation vehicle in the next 12 to 24 months.
The number one strategic reason for executing a continuation vehicle, cited by 53% of general partners, is to provide distributions to paid-in capital for existing limited partners. However, 42% of respondents cited securing new unfunded capital to pursue accretive mergers and acquisitions as their primary driver. Another 33% used continuation vehicles to reset investment duration for assets requiring longer holding periods.
The Squeeze on Fund Economics and the Rise of Coinvestment
Data reveals significant downward pressure on the industry's traditional 2% headline management fee. Small buyout funds under $2 billion are largely immune to this pressure, with 96% maintaining a 2% headline fee. For middle-market funds between $2 billion to $7 billion, only 65% secure the 2% rate. Fee compression becomes stark at the upper end: among large funds managing between $7 billion and $12 billion, just 50% command a 2% fee. For mega funds exceeding $12 billion, 60% of funds charge a 1.5% management fee.
Coinvestment represents substantial drag on fund economics. Coinvestment capital is widespread and is typically offered on a fee-free basis. The median distribution is 33 cents of coinvestment capital for every $1 of commingled fund commitment, translating to a 25% reduction in overall fee revenue for the general partner.
The Sober Reality of Artificial Intelligence Implementation
The private equity industry takes a pragmatic approach to generative artificial intelligence. Within their firms, 40% of general partners point to due diligence processes as the area where AI delivers the highest return on investment. Deal sourcing and market mapping represent the second highest impact area at 33%. Administrative applications lag significantly — only 10% see highest returns in back-office operations.
"A plurality of 46% expect the primary tangible outcome of AI to be cost savings and efficiency, achieved through headcount reduction or by increasing output with existing staff levels."
A significant portion remains unconvinced of near-term payoffs. Fully 39% of respondents stated it is too early to tell, expecting no material financial impact on their portfolio companies in 2026. With valuations flat, management fees compressing, and artificial intelligence serving primarily as an efficiency lever rather than a growth engine, private equity firms must rely on rigorous, fundamental business improvement to generate returns in the year ahead.