No going back for private markets

For those who watched the State of the Union speech in disbelief this week, one key question remains: will we ever go back to a reality based on actual verified facts? While Gideon Rachman in the Financial Times argued that “A post-Trump restoration is still possible”, he acknowledges that many agree with Mark Carney’s Davos speech which said that  “We know the old order is not coming back”. This is also the conclusion of the fact-checked analysis of the team at Bain & Company on the state of the private equity industry. 

Released earlier this week, Bain & Company’s annual Global Private Equity report 2026 quantifies what reaching maturity actually means in terms of future returns for the industry and how the traditional value creation playbook is being rapidly rewritten in much tougher macro conditions.  

Overall, the report is optimistic about the future of private equity. However, it raises the issue of an industry working hard to rapidly attract a new class of less sophisticated retail investors, on the back of strong historical outperformance, just as the rising cost of alpha is casting some doubt over the sectors’ ability to replicate the same level of past outperformance.  

The fact that US stocks have outperformed overall buyout returns over the past decade - but not, it should be said, top-quartile buyout funds – is a striking reminder that private market outperformance is never guaranteed. What matters more than ever for all classes of investors is being able to access the best funds. Leaving aside the tech-driven public markets exuberance of recent years, structurally the private equity industry - with $1.3tn of ageing dry powder competing for the same high-quality assets - has become hyper competitive. This, market observers believe, will inevitably have an impact on the level of returns it can achieve in the future.  

If returns are an issue so is liquidity, especially for smaller investors. The news earlier this week that Blue Owl halted redemption at their retail private credit fund offers a stark reminder that retail investors do get spooked when times get tough and valuations no longer add up. Their investment mindset and horizon are not generally aligned with that of more sophisticated larger institutional investors who benefit from a great deal more access to information and the ability to diversify and pivot their allocation strategy.  

If anything, the industry has become less liquid than it has ever been in recent years. The report points to a stock of unrealised buyout assets at $3.8tn - representing 32,000 companies - for an average holding period of seven years. In essence it has become harder to create and realise value, and it is taking much longer. This remains a significant challenge for the industry illustrated by the fact that distributions as a percentage of NAV have now lagged the industry average for four straight years and is at a multidecade low. This is a problem for institutional investors who take longer to recommit capital, but it also creates further complexity for funds seeking to offer liquid retail products based on underlying assets that are taking longer to realise. 

The good news though, is that notwithstanding these structural changes, and the challenge of getting a new type of investors safely into the asset class, a great majority of institutional investors plan to maintain or increase their allocation to private equity this year.  

Demand remains high, but to capture investors’ attention, the report concludes that it has never been so critical for private equity funds to define “what makes them special” and to show how they will continue to deliver alpha in this AI-disrupted, geopolitically uncertain and hyper-competitive brave new world. 

When it comes to private equity, there is indeed no going back. Telling a consistent story, backed up by convincing data on how funds build value, will be key.  

As for geopolitics, I take comfort in Gideon’s view that just as England recovered from its civil war years, a come-back of a more familiar value system is still possible. Only time and the US mid-term elections will tell.