Allocators are pulling back from new private equity commitments as cash remains trapped in illiquid portfolios, forcing investors to ration capital even as deal values climb and fund managers talk up recovery.
Deal volume fell 22 percent year-over-year, according to S&P Global Market Intelligence, while value rose to $154.64 billion from $137.31 billion. This is impacting allocator budgets, with CIOs making fewer new commitments.
“Yes, we have too much in illiquid private markets, with valuations going up and companies staying private longer,” Rob Rahbari, senior investment officer and assistant treasurer at the University of Rochester, told Institutional Investor. “This is forcing a lack of capacity for new investments, which is a challenge until we get a lot of that liquidity back.”
While Rahbari said IPOs like SpaceX could eventually unlock meaningful liquidity, he acknowledged the timing mismatch. “These winners are staying private for longer,” he said. That can pay off, but Rahbari says it takes patience allocators don’t always have.
Geopolitical instability driven by chaotic trade policy and wars in the Middle East has contributed to valuation uncertainty, slowing negotiations and delaying exits. halt. As investors opt for fewer, larger deals, allocators have to be more selective with their targets — if only because so much of their cash is still locked up.
“Geopolitical tensions and tariff concerns have fundamentally altered deal dynamics, with valuation pressures stemming from Middle East conflicts and trade policy uncertainties,” according to research from S&P Global Market Intelligence. “These factors have extended due diligence timelines and increased investor scrutiny.”
One corporate pension CIO said that, like most plans, they are overweight private equity “because we’re not getting the capital back so we can’t use it.” So, they want to be “very selective” in the space.
“To give a GP my capital for 10 years and I lose all my optionality,” they said. “I need to be paid for that.”
Despite a cautious macroeconomic outlook, fund managers remain optimistic about their fundraising prospects. New data released by S&P on April 13 finds most GPs (59 percent) remain optimistic about 2026 (in line with most recent industry surveys), even as allocators struggle with near-term liquidity, with most GPs expecting deal volumes to hold steady or improve as fundraising conditions brighten. Fund managers say they are doubling down on value creation through operational improvements.
GPs remain concerned about shifting investor priorities, and while 40 percent expect deal volumes to remain steady, only 20 percent expect improved valuations. Twenty-eight percent expect deterioration.As managers that can’t generate distributions struggle to raise capital, mid-tier consolidation is expected, with nearly half of GPs (46 percent) surveyed by S&P preparing to see a shake-out of mid-tier peers this year.
“The private equity industry is at an inflection point,” said Kevin Zacharuk, S&P Global Market Intelligence’s head of private equity, data & research, in a statement. “GPs are shifting their approach to value creation, with operational improvements now ranking as the top priority.”
