Beyond the Headlines

Despite the headlines, current trends point to greater discipline in private markets, not deterioration. In public equity markets, price discovery has become increasingly distorted by passive flows and a growing share of retail investors who react to short-term news rather than fundamentals. In contrast, private market pricing remains anchored in underwritten return expectations across multiyear holding periods. Higher interest rates raise the required earnings growth to meet those return targets, which has translated into more selective underwriting, fewer transactions, and purchase price multiples that reflect a more balanced assessment of risk and return, a welcome contrast to public market exuberance. And, despite speculation about asset quality, our proprietary data of 1,600 firms suggest that sponsor-backed companies are generally in good shape: in the US, median revenue and profit growth were 6.2% and 7.7% over year-ago levels, respectively. By contrast, over the same period, publicly traded companies in the S&P Small Cap index saw revenue and profit growth of just 4.7% and 0.7%, respectively.

Global M&A activity surged in the quarter, with deal values nearing $1.3 trillion in Q3—up 21% from the prior quarter and 42% year-over-year, driven by a handful of mega-deals such as Union Pacific’s proposed $88.2 billion acquisition of Norfolk Southern and Palo Alto Networks’ $24.5 billion announced purchase of CyberArk. Private equity followed a similar trend: LBOs totaled $241 billion, the highest since 2007, with six of the ten largest deals based in the US. Exit activity continued to lag, with global buyout exits totaling $101 billion, roughly flat to Q2 but down 7% relative to the year-ago quarter. While data revisions suggest improving fund distributions, cumulative shortfalls remain deep. The IPO market was stronger in the quarter, and reached its highest level of activity since 2021: 28 operating companies listed on US exchanges in Q3, raising $15.5 billion, though listings were heavily concentrated in tech and AI-adjacent sectors.

With transaction counts and exits slower, and liquidity to LPs more limited, secondary strategies have assumed a distinct role within portfolios. The secondaries market remains undercapitalized even as deal flow is strong. Concerns about negative selection in secondaries, particularly GP-led transactions, appear overstated. While some fear these deals reflect weaker assets that sponsors struggle to exit, our experience suggests the opposite: GPs often use continuation vehicles to maintain exposure to their strongest-performing assets, where they see additional upside beyond the initial hold period.

Following the recent Tricolor and First Brands bankruptcies, concerns have grown about asset quality in the leveraged loan and private credit markets. BDCs have underperformed broader markets since July, and firms and funds with the greatest exposure to First Brands saw their prices fall substantially in the aftermath. These events, in our view, are isolated and not representative of broader private credit asset quality: fundamentals appear to be resilient and overall default rates are steady. At the same time, high all-in yields and persistently low volumes of new money issuance mean that demand for leveraged credit continues to exceed available supply by a large margin, compressing spreads to post-GFC lows. As a result, risk premia in syndicated and private credit have tightened, while risk-adjusted returns in portfolio finance continue to look more attractive.

Read the full Global Private Markets Quarterly