Challenges of the past several years forced a sudden rethinking of approaches to liquidity, asset allocation and manager selection that are now translating into more permanent changes in the private markets landscape.
The Big Picture
Global private markets AUM stands at roughly $15 trillion and is expected to reach $25 trillion by 2029, growing at about 10% annually. Global flows hit $1.4 trillion in 2025, up over 10% from 2024. But the next phase of growth won't look like the last. Future expansion will be driven less by scale alone and more by movement into new asset classes, greater reliance on secondary markets, and innovative liquidity pathways.
Institutional investors are fundamentally rethinking how they measure performance. With roughly half of institutions still reporting denominator-effect pressures and recent US PE buyout vintages delivering distributions at about half the levels of prior cycles, DPI (distributions to paid-in capital) has emerged as a priority metric alongside IRR and multiples. In McKinsey's LP survey, DPI rose from 8% to 21% as a most-critical metric between 2022 and 2025. This shift is driving allocators toward income-generating strategies, shorter J-curves, and assets with clearer exit paths.
The investor base itself is also diversifying. Over 350 evergreen vehicles have launched since 2019, and wealth-focused evergreen AUM is projected to grow from $430 billion today to $1.1 trillion by 2029 (a 20% CAGR). While these remain a small fraction of drawdown funds, deeper capital pools could ultimately strengthen secondary markets and create alternative exit pathways.
Private Equity & Venture Capital
PE deal activity was robust in 2025, with deal value exceeding $1 trillion for only the second time ever, driven by 150 megadeals totaling nearly $570 billion. Exit activity is recovering but unevenly — distributions remain about half of historical norms, and roughly a quarter of 2025 distribution yield came from non-traditional sources like continuation vehicles, dividend recaps, and NAV loans. The US PE universe now holds more than 13,000 portfolio companies (about eight years of inventory at current exit pace), with 30% aged seven years or older.
The definition of "exit" is changing. Continuation vehicles have moved from occasional feature to structural component, and half of PE investors now rank exiting portfolio companies as their top 2026 focus.
Venture capital shows a K-shaped recovery. AI accounted for roughly 65% of total VC deal value in 2025, with four of the five most valuable VC-backed companies being AI-focused. The market is extraordinarily concentrated: about 795 unicorns, 65 decacorns, and 6 hectocorns now make up 51% of total venture market cap (up from 26% in 2020). The top 10 US VC deals represented 38% of 2025 deal volume, far above the long-term 8–15% range.
This bifurcation means top-tier companies can still achieve exits while a long tail of VC-backed companies may become stranded. The report recommends prioritizing GPs who drive true value creation and portfolios built on industry-leading companies with credible exit paths. Defense tech emerges as a particularly compelling theme, with $49 billion in deals and $54 billion in exits in 2025, supported by US defense outlays surpassing $1 trillion annually but execution and procurement expertise matter.
Secondaries
The secondaries market has transformed from a tactical tool into a strategic core allocation. Transaction volume hit a record $240 billion in 2025 — a 48% jump from 2024 — with GP-led transactions representing about half of activity. The market is broadening beyond PE buyouts: GP-led credit secondaries grew rapidly to about 13% of volume, with multiple continuation vehicle deals exceeding $1 billion.
The supply-demand imbalance is structural. Global private equity NAV exceeds $4 trillion, more than half of portfolio companies have been held over four years, and even if distribution rates recover to the high teens, unrealized NAV is likely to keep rising through 2029. Yale's multi-billion-dollar portfolio sale above 90% of NAV signals how institutions are increasingly using secondaries strategically.
Single-asset continuation vehicles (SACVs) deserve particular attention. SACVs now represent roughly 50% of GP-led volume, with supply growing 60%+ year-over-year to $99 billion. Dedicated lead-buyer dry powder sits at only $20 billion — roughly a 5x supply-to-demand imbalance, creating attractive entry terms for buyers.
For allocators, this points to a multi-year window of negotiating leverage and access to high-quality assets with greater selectivity.
Private Credit
Private credit AUM is projected to exceed $2.6 trillion by 2029, with the long-term addressable market potentially exceeding $30 trillion when including asset-based finance and securitized credit. However, returns going forward will depend more on selectivity across strategy, structure, and geography than on broad exposure to mainstream direct lending.
Competition in upper-middle market direct lending has compressed returns and weakened protections. Maintenance covenants are nearly universal in deals under $350 million (97%) but drop to 38% in deals above $1 billion. Payment-in-kind toggles appear in 44% of deals over $1 billion. Default rates jump from 1.2% to 4.6% when including selective defaults using PIK conversions and uncompensated term extensions.
The "sweet spot" is emerging in the core middle market ($25–100M EBITDA) and selective non-sponsor deals, where covenant discipline, tighter structures, and relationship-driven origination remain more prevalent. Non-sponsor deals offer target yield premiums of 250–350 bps over broadly syndicated loans (vs. 150–250 bps for sponsor-backed), with stronger covenants and additional upside features.
Geographic diversification also offers opportunity. The European stressed credit market has grown to around €100 billion (roughly double its long-term average), now spanning diverse sectors including traditionally defensive areas. Structural features like investor "whitelists" can create pricing dislocations exploitable by specialized managers.
Multifamily lending stands out within asset-based finance. With $3.4 trillion of real estate debt requiring refinancing in the next few years and multifamily values down approximately 30% since 2021, lenders enter at attractive valuations with substantial cushion against losses.
Real Estate
CRE is entering a fundamentally different cycle. After declining nearly 20% from 2021–2023, property values have stabilized, with six consecutive quarters of positive returns through Q4 2025. Importantly, the recovery has been driven almost entirely by income rather than appreciation.
The cycle will be marked by sharp divergence by property type. Large portions of office and discretionary retail face structural weakness, while housing, logistics, essential retail, and healthcare real estate benefit from durable tailwinds. Alternative CRE sectors have grown from 3.2% of the NCREIF Property Index in 2018 to 9.0% in 2025, outpacing traditional sectors recently. Manufactured housing, data centers, senior housing, self-storage, and student housing have delivered the strongest returns over the past year.
Senior housing is highlighted as particularly compelling. The 80-plus population is projected to expand 2.5 times faster over the next decade compared to the prior ten years, while construction has slowed sharply after earlier overbuilding. More than half of baby boomer households now have net worth exceeding $250,000, making median senior wealth sufficient to fund a six-year residence — nearly triple the typical stay. The report also calls out industrial outdoor storage as an attractive alternative sector, supported by e-commerce, onshoring, and population shifts, while noting that data centers retain strong long-term demand drivers but currently look less attractive from an entry-point perspective.
Bottom Line
The common thread across asset classes: success in 2026 will depend less on broad market exposure and more on targeted selectivity — choosing GPs with differentiated capabilities, portfolios with credible exit paths, segments with stronger structural protections, and sectors backed by enduring secular tailwinds.
