Private Equity Opportunities in 2026: Value Creation in a Higher Rate World

In 2026, private equity’s biggest wins may come from the market’s blind spots. With big indexes crowding the same names and higher rates putting pressure on some balance sheets, we believe solid companies could be flying under the radar, while corporate parents are spinning off strong divisions, and assets driving the real economy are potentially under-owned.

This all points to a private equity playbook that sounds straightforward but takes skill and experience to execute well: buy smart, help businesses get better and keep exit paths open. Above all, our mindset is to stay flexible and keep investing steadily rather than trying to time the market, letting compounding help with the heavy lifting over time.

2025 in Review: What Mattered & Why It Still Does

Three interconnected forces shaped the public equity backdrop in 2025, and those forces continue to set the stage for where opportunity is likely to emerge for private equity investors. The first was the pull of indexation, which channeled flows toward benchmark leaders and, in many cases, detached prices from fundamentals. That dynamic left many non-indexed, non-thematic businesses underfollowed and mispriced, despite durable cash flows and actionable self-help levers.

The second was concentration. A small group of mega-cap leaders drove most of the market’s gains, creating a self-reinforcing loop where their size and momentum attracted even more flows. The risk now is that if that momentum breaks, the reversal could be fast and disorderly, a “snowball in reverse,” with crowded winners selling off sharply and dispersion widening across the rest of the market.

The third was valuations. Through multiple lenses, pricing reached extremes: the Shiller CAPE near ~40x, and the S&P 500 price-to-sales around ~3.3x, with roughly a quarter of constituents above 10x sales. These are levels comparable to the dot-com era, when valuations similarly detached from fundamentals amid speculative enthusiasm for technology and growth.  We believe the implication is clear: starting points matter, dispersion is elevated, and fundamentals-based underwriting is primed to exploit pockets of mispricing that broad indices gloss over. 

In contrast with this public equity landscape, private markets in 2025 remained resilient and offered a larger and more diverse universe of investable companies. Even with tighter liquidity and higher rates challenging leverage-driven returns for many private equity managers, private equity continues to outperform public markets, especially when managers focus on operational value creation and disciplined deployment.

Three Opportunities for 2026

If 2025 underscored the importance of patience in private equity, we believe 2026 will test the power of positioning. Now that we’ve covered the forces shaping the market over the last year, let’s discuss the opportunities likely to dominate 2026.

1. Public Markets Lack Price Discovery

A long run of passive flows and thematic crowding has pushed solid, non-thematic companies to “lowest common denominator” multiples, often disconnected from their cash-flow durability. That gap has created fertile ground for public-to-private takeouts and corporate carve-outs at disciplined entry prices. We believe the strategy is clear: sharpen focus, modernize operations, simplify portfolios and compound through accretive tuck-ins.

By doing the hard work to determine the underlying value of underappreciated assets, identify growth opportunities and invest in operational upgrades, private equity can turn valuation rerates into multi-year compounding.

2. Private Equity Capital Stress Creating Compelled Sellers

Fundraising remains selective, with GP demand outpacing LP supply (especially in the middle market). This is exacerbated by the industry’s widening DPI (Distributed to Paid-In Capital) gap: after several years of muted exits and extended hold periods, LPs increasingly require distributions to rebalance portfolios, meet liquidity obligations and recommit to new vintages. The result is a growing imperative for managers to crystallize value, even if that means accepting narrower processes or considering creative exit routes. These timing mismatches and liquidity needs can produce motivated or even compelled sellers.

In this environment, bilateral processes, carve-outs and structured or continuation-adjacent solutions reward buyers who deliver speed, certainty and creative capital at scale. The edge goes to those underwriting to conservative bases with multiple ways to win — value creation, deleveraging and optionality for follow-on capital when catalysts emerge — while providing the liquidity outcomes sellers increasingly need to restore DPI and re-open fundraising pathways.

3. Under-owned Industrial and Physical Assets

As capital concentrates in AI and software narratives, under-owned, tangible “picks-and-shovels” assets look increasingly attractive, not only on their standalone merits but also for the diversification they bring to portfolios increasingly dominated by digital growth exposures. Platforms tied to reindustrialization and the digital buildout — power and thermal systems, engineered components, automation and controls, logistics and maintenance, and real-asset adjacencies — can offer cash flow today with optionality tomorrow.

These businesses often exhibit economic characteristics that are distinct from high-multiple technology sectors: durable demand, physical throughput and revenue models tied to replacement cycles, regulation or infrastructure expansion. Where pricing power, contractual revenues and capex pass-through mechanisms exist, investors can underwrite resilient base returns with upside from secular demand and consolidation — while also reducing concentration risk and improving portfolio balance in an environment where thematic overcrowding has become a feature, not a bug, of public markets.

How to Position for 2026

As the opportunity landscape for 2026 takes shape, strategic positioning will separate participation from performance. Given the backdrop of market inefficiencies, capital stress and under-owned assets, how can investors be best positioned in the year ahead? We believe the key is to keep capital working with deliberate pacing.

Continuous deployment across 2025–2027 can help alleviate weak vintage concentration and the temptation to pause commitments amid light DPI (Distributed to Paid-In Capital). Meanwhile, reups, selective co-investing, and secondaries can smooth out the J-curve and maintain exposure to value creation over market timing.

Additionally, turning to creative managers with flexible mandates and a record of pivoting in dislocations is a sound approach. This isn’t about guessing the tape; it’s about disciplined agility with the speed, certainty and conservative underwriting to lean into distressed or dislocated opportunities without changing stripes.

Finally, treat equities — both public and private — as compounding engines. Look to rebalance public positions when the market weakens and extend holds in private markets when IRR/TVPI (Total Value to Paid-In Capital) trade-offs favor continued value creation. Compounding becomes even more powerful when investments begin at disciplined entry valuations, an advantage that grows when dispersion is high and opportunities are mispriced.

The Bottom Line

With indexation, concentration and stretched valuations shaping public markets, we believe 2026 looks set to reward PE investors who buy right, build better, and exit well — with potential silver linings forming in areas such as mispriced non-indexed businesses, capital-stress-driven opportunities, and under-owned industrial and physical assets. If public market returns ultimately settle lower from today’s elevated starting point, the excess return opportunity (i.e. the illiquidity premium) may widen, strengthening the case for disciplined private equity deployment. Rather than trying to nail the perfect moment, steady deployment and strategic flexibility are what help set investors up to harness the long-term power of opportunities in private equity.