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Key takeaways from Q1 2026
- Discipline rises as deal making moderates: US private equity (PE) deal activity moderated in Q1 2026. Volumes were down 33% and deal value was down 43% quarter over quarter (QoQ) amid tighter financing and liquidity constraints, signaling a shift toward more selective and higher conviction deals, particularly in AI and high-quality assets.
- Exits show selective strength: Larger transactions are driving early signs of recovery, pointing to improving but still uneven liquidity. Average exit size increased by 48% between Q4 2025 and Q1 2026, indicating improving liquidity for scaled, high‑quality assets.
- Fundraising remains constrained: LP liquidity pressures persist, accelerating the shift toward secondaries and yield-oriented strategies such as infrastructure. Compared with Q4 2025, fundraising value declined by 24%, while the number of funds closed fell by 22%.
- Macro uncertainty reshapes strategy: Elevated rates and geopolitical risk are steering capital toward resilient sectors like energy, industrials and infrastructure, sectors that are considered heavy assets with low obsolescence (HALOs).
Note: All graphs and tables refer to US data unless stated otherwise. Survey data mentioned below was conducted globally and 60% of respondents were from the United States. PitchBook and Dealogic periodically update historical data, so figures shown in the graphs for prior years may differ slightly from those in previous reports.
Deployment moderates
After witnessing resurgence in the second half of 2025, US PE deployment activity moderated in Q1 2026. As shown in Figure 1, significant PE deals declined by 33% in volume and 43% by value when compared to last quarter, reflecting a sharp pullback in new development. This slowdown follows two quarters of recovery. Rather than signaling a lack of investment opportunities, the decline points to increased caution among general partners (GPs) as they reassess risk‑return trade‑offs in a higher‑cost and more uncertain financing environment. Survey data reinforces this shift: the proportion of firms expecting acquisitions to increase over the next six months has fallen to its lowest level in two years.
Financing conditions remain a key constraint. Figure 2 shows that institutional leveraged loan issuance continues to run at reduced levels, limiting the availability of traditional bank‑led financing for buyouts. While direct lending activity has remained more resilient, it has not been sufficient to fully offset the contraction in syndicated loan markets. Combined with muted fundraising over recent quarters, these dynamics have reduced underwriting flexibility and contributed to longer decision timelines, reinforcing a more selective and disciplined approach to new investments.
At the global level, PE deployment followed a similar trajectory, with deal value declining by approximately 12% year over year in Q1 2026 as firms recalibrated deployment strategies after a strong recovery in late 2025.
Source: Dealogic, dealogic.com
Source: Leveraged Commentary and Data (LCD), US Private Credit Monitor
Private credit’s critical role
Private credit remains a critical, though increasingly scrutinized, pillar of the US PE financing ecosystem. Figure 3 highlights a meaningful shift in leveraged buyout (LBO) spread distribution over time, with approximately 60% of LBOs financed in the last 12 months to March 2026 have been priced at spreads of 450–499 basis points (bps) compared to over 600 bps in the 2022–2023 time period. This compression reflects a combination of increased capital availability within private credit platforms, stronger sponsor lender relationships and a focus on higher quality borrowers. Private credit has facilitated deal execution and contributed to improved certainty and speed of financing in a volatile market environment.
Source: Leveraged Commentary and Data (LCD), Q1 2026 Credit Markets Quarterly Wrap
Apart from being borrowers, large private equity firms also manage sizeable private credit platforms, and recent redemption pressure in certain semi liquid fund structures has placed these platforms under increased scrutiny. As shown in Figure 4, PE firms remain divided on whether borrower health is a primary driver of these redemption pressures, reflecting mixed views on underlying credit risk. However, EY PE survey results shown in Figure 5 indicate that the majority of respondents expect the impact of these concerns to be limited to moderate, rather than resulting in a fundamental shift away from semi liquid private credit vehicles. This suggests potential adjustments in liquidity management and product design.
Source: EY PE survey Q1 2026
Source: EY PE survey Q1 2026
Consumer and technology sectors dominate in more targeted fashion
Sector trends illustrate a shift toward selective deployment in US PE. The consumer sector represented a larger share of deal activity in Q1 2026 (27%) than the prior year (11%). Technology remains a core focus area for private equity, particularly in AI native and AI enabled software, reflecting continued long term interest in digital transformation and automation themes. While its share of deployment declined year over year (19% vs. 28%), GPs are concentrating capital into higher-conviction opportunities due to disruption risks and revised growth assumptions. This increased selectivity is consistent with global trends, where technology represented approximately 30% of PE deployment by value last year but declined to around 12% in Q1 2026 as sponsors reassessed software.
Source: Dealogic, dealogic.com; Others* include real estate, telecom and retail; analysis for deal US$100m and above.
EY PE Pulse survey results shown in Figure 6 indicate that GPs are becoming increasingly selective in allocating capital to the technology sector. Respondents cited increased diligence around AI disruption risk, revisions to growth and multiple assumptions and a greater emphasis on differentiated assets with clearer paths to value creation. As a result, technology deal making has become more targeted, with capital increasingly concentrated in higher conviction opportunities rather than broad based exposure across the sector.
Source: EY PE survey Q1 2026
Exit expectations are resetting
Exit activity continued to strengthen in Q1 2026, extending the recovery that gained traction in 2025. While aggregate exit value declined slightly in Q1 2026 compared with Q4 2025, this largely reflected an increase in exits with undisclosed values rather than weaker underlying exit conditions, as shown in Figure 7. Exit volumes increased sequentially and average disclosed exit size rose 48% quarter over quarter, indicating renewed buyer appetite for larger, scaled assets. Despite improved exit sizes, survey results indicate that expectations for increased exit activity fell from 72% to 46%, the lowest since the first half of 2025.
The improvement in exit quality is an important signal for the broader private equity ecosystem, as larger realizations are essential for restoring distributions to limited partners. However, the recovery remains uneven and selective, and exit markets continue to be sensitive to macroeconomic volatility, financing conditions and sector‑specific risks. Consequently, while exit momentum is constructive, it has not yet been sufficient to materially alleviate LP liquidity constraints across the market.
Globally, PE exits totaled approximately US$171 billion in Q1 2026, broadly in line with recent trends despite a sequential decline, underscoring continued selectivity in exit markets.
Source: Dealogic, dealogic.com
Fundraising remains pressured amid LP liquidity constraints
Fundraising continues to be pressured as PE enters 2026. As shown in Figure 8, the amount of capital raised declined by 24% and fund volume decreased by 22% in Q1 2026 compared to the prior quarter. Despite a discernible uptick in exit activity in 2025 and Q1 2026, PE distributions to LPs have yet to catch up. As illustrated in Figure 9, distribution by PE funds globally had declined to 14.5% as a share of beginning NAV as of September 2025, leaving many LPs liquidity-constrained, with limited capacity for new commitments.
As liquidity remains tight, competition for capital has intensified and become more concentrated among larger, established managers. At the same time, LP preferences are shifting toward strategies that better align with near-term cash flow needs. Increasingly, investors are prioritizing faster distributions and reduced J-curve exposure, driving greater allocation to secondaries, infrastructure and other yield-oriented strategies.
Together, these dynamics point to a more selective and structurally constrained fundraising environment, where access to capital is increasingly tied to a manager’s ability to deliver liquidity and differentiated returns.
Source: PitchBook, pitchbook.com
Source: PitchBook, pitchbook.com
Outlook: selectivity remains paramount amid macro uncertainty
Looking ahead, anticipation of a re-emergence of an exit slowdown remains the primary concern among GPs as it would be unfavorable to the entire lifecycle of PE capital flow, including realizations, distributions and fundraising capacity. As shown in Figure 10, the risk of prolonged weakness in exit activity is cited as the leading concern, alongside geopolitical and macroeconomic volatility, persistent high interest rates and financing costs.
Current geopolitical uncertainty could further impact the PE sector. With oil prices increasing, portfolio companies in energy, infrastructure and renewables are likely to benefit and could also expect an increase in investment activity. At the same time, a potential rise in inflation could keep interest rates higher for longer, contributing to margin compression and refinancing risk for highly leveraged portfolio companies, particularly non-energy sectors such as airlines and marine transportation. Under these conditions, LPs could increase their capital allocation focus toward more HALO-type investments (energy, industrials and less volatile sectors such as infrastructure funds).
Source: EY PE survey Q1 2026
Amar C. Mehta and Shrey Tripathi co-authored this article.
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