Private Equity Pulse: key takeaways from Q1 2026

Private equity navigates a more complex geopolitical and macroeconomic environment.

In brief

• Private equity entered 2026 from a position of strength, with sustained deployment underscoring continued confidence despite a more complex macro backdrop.
• A more targeted approach to tech investing is emerging, with general partners (GPs) leveraging sector expertise and enhanced diligence to identify differentiated opportunities.
• Portfolio outlooks remain stable; firms expect steady performance driven by operational value creation, reinforcing PE's ability to perform through cycles.

Private equity (PE) entered 2026 with strong momentum, driven by supportive fundamentals and rising activity in the second half of 2025. Against this backdrop, the first quarter saw a shift toward a more selective investment environment, driven by (1) geopolitical developments in the Middle East and, more significantly, (2) an increasing focus on AI-related disruption within the software sector. The result has been a recalibration of sentiment across the market and a more measured pace of activity.

This selectivity extended to the leveraged financing markets, where wider spreads, softer retail demand and a greater premium for higher-quality credits contributed to a more disciplined underwriting environment, even as capital remained available for well-structured transactions.

In aggregate, PE firms announced 110 deals in Q1 valued at US$172b, a 12% decline by value vs. the first quarter of last year.

Underlying market strength remains evident — over the last twelve months, firms have announced more than US$900b in deals, a 34% increase compared with the prior period. This sustained level of deployment reflects continued confidence in the asset class and highlights the sector’s resilience in executing on investment strategies in a rapidly changing market environment.

The survey data indicates that this shift is translating into tangible changes in strategy — nearly two-thirds of GPs report that they’re pursuing a more targeted investment approach, concentrating on areas where they have conviction and sector expertise while another 60% report that they’ve increased their level of diligence on AI disruption risks. Still others are investing opportunistically in AI-native or AI-enabled software as they seek to take advantage of generational opportunities in the way that software is created, sold and used.

Sector rotation meets macro complexity

Alongside evolving views on technology, a gradual shift toward more asset-heavy sectors is underway. Areas such as infrastructure and energy are attracting increased attention as investors seek exposure to assets with tangible cash flows and inflation-linked characteristics. Q1 saw 13 deals announced in the utilities and energy space with an aggregate value of US$67b; that’s the most in a single quarter on record.

This rotation is taking place within a macro environment that is becoming more dynamic, as geopolitical developments shape commodities markets and pricing across asset-heavy sectors. With expectations for a higher-for-longer rate environment continuing to build, firms are leveraging underwriting discipline and strategic flexibility to pursue diversification while navigating evolving pricing dynamics.

Exits remain roughly in line with recent trends

Firms announced US$171b in total exit deals during the first quarter, a decline from Q4 but roughly in line with trends over the last 12 months. Trade sales accounted for US$121b of exit value, while secondaries reached US$45b and IPO activity totaled US$5b. Overall volumes declined 29% to 95 transactions, reflecting a more curated approach to bringing assets to market during the quarter.

Outlook

The survey responses indicate that geopolitical developments are the primary external factor expected to influence portfolio performance over the next 12–24 months, followed by exit timing considerations as firms continue to monitor market conditions. This underscores the growing importance of external dynamics in investment outcomes.

Notwithstanding these factors, firms report a broadly stable outlook for portfolio performance. Expectations for earnings growth and top-line revenue remain largely in line with current levels, suggesting confidence in the resilience of portfolio companies and the continued impact of operational value creation initiatives.

Despite macro headwinds and market shocks, firms remain optimistic about the outlook for the portfolio over the next 12 months. We asked GPs to rate their base-case outlook for portfolio performance on a scale of 1-100, where 1 = significant deceleration, 50 = no change vs current levels, and 100 = significant acceleration.

Expectations for multiple expansions are more measured, indicating that returns are likely to be driven more by underlying business performance than by valuation uplift.

Overall, the data points to the continued strength of the PE model and its ability to help portfolio companies navigate a wide range of dynamic externalities. Indeed, it’s precisely in periods of elevated uncertainty where PE’s core strengths — its role as an engaged and active manager and its alignment of interests across the enterprise — come to the fore.