AI caution and uninvested capital: Private equity predictions for 2026
Private equity deals will “take longer” this year as firms continue to ramp up their use of a controversial tactic to hold onto assets for longer in order to maintain their value.
Partners at law firm White and Case expect general partners to continue to hold onto a significant number of assets which were originally expected to have been part of a deal by 2026.
These transactions sell assets already owned by a private equity (PE) group to so called continuation vehicles, which are newer funds also managed by the firm.
The tactic allows PE firms to return cash to investors in older funds while holding onto and preserving the value of existing assets. But the move has prompted concerns around potential conflicts of interest.
This will cause deals to progress more slowly, with longer negotiation cycles and greater regulatory scrutiny.
More transactions are expected to go through strategic buyers while industrials, healthcare and defence are expected to remain the most active sectors for transactions.
Ken Barry, partner and head of Europe private equity, said: “Dealmakers are entering 2026 with significant dry powder and a sizeable backlog of assets waiting for an exit window.
“Transactions are getting done, but they’re taking longer and require greater conviction. We expect strategic buyers to remain active and sponsors to focus on situations where they can underwrite value with more certainty.”
AI caution and smaller fund consolidation
While many portfolio managers have deemed AI as likely to remain a dominant theme for public markets this year, limited partners are predicting to take greater caution.
Concerns are growing across the private sector that AI, which was once seen as a key enabler of tech investment, will also dramatically “disrupt” certain business models.
Limited partners are also becoming more selective about deploying capital, opting for larger general partners with proven track records for generating sizeable funds, over smaller, specialised players, who are continuing to struggle against tough economic conditions.
This dynamic could potentially “accelerate consolidation among smaller buyout firms” in order to meet limited partner’s needs.
Public to private transactions to keep pace
In 2025, public to private transactions became a staple in the market with private equity firms sitting on record levels of uninvested capital, dubbed ‘dry powder’, estimated to be around $1.2tn (£893.28tn) and facing pressure from limited partners to deploy it into new investments and generate returns.
This caused a number of public firms to be purchased by PE firms, taking them off the stock market, including FTSE listed Spectris, which was acquired by private equity firm KKR for £4.7bn.
This is anticipated to persist in 2026, due to falling interest rates, with central banks including the Fed and the Bank of England predicted to bring rates down in 2026, making it easier for firms to borrow, as well as many still sitting on large amounts of dry powder.
Emily Brown, partner and co-head of White & Case global private capital industry group, said: “Improving liquidity as more exits come through should support a more constructive fundraising environment in 2026.
“As LPs begin to see capital returned, we expect appetite to increase across both primary commitments and the growing secondaries and continuation vehicle markets.”