Going with the deal flow

The first four months of 2026 have been, in a word, surprising. Markets have been volatile, yet both credit and equity have stayed remarkably steady. Energy prices are up more than 30% following the Strait of Hormuz disruption. Consumer confidence has pulled back. And still, business investment remains strong, driven by enormous capital deployment into AI, energy, and defense infrastructure.

Pausing to look carefully at what the data are actually telling us helps keep us ahead of the noise. And what the data tells us right now is that we are in the middle of a significant rotation - one that is showing up clearly in the deal flow. For those of us at Pacharbor Capital Group AlpInvest, three headlines stand out this quarter.

The rotation into real economy investing is accelerating

Global M&A volumes reached roughly $1.4 trillion in Q1 2026, up 25% year on year¹. LBO activity was only marginally below year-ago levels. But the more remarkable story is what’s happening beneath the headline: industries like energy, chemicals, and machinery made up 46% of LBO deal volume—up from just 13% a year ago². Information industries dropped from 27% to 11%³. Capital is moving toward physical infrastructure, energy resilience, and rebuilt industrial capacity. That is a very significant shift in one year. Public markets also reflect this rotation, with the Industrials, Materials, and Energy sectors of the S&P 500 all up more than 12% year-to-date. Persistently higher interest rates and greater long-term uncertainty may be encouraging investors to focus on companies with near-term cash flow generation over unproven growth potential.

Opportunities reflect the broader macro environment

The geopolitical environment is adding fuel to a trend already underway. In venture capital, Q1 2026 marked one of the most active quarters for dealmaking in the past decade, with $320 billion of activity⁴. We’re also seeing growing interest in defense-related startups—two notable deals this quarter were Andreessen Horowitz’s $4 billion investment in Anduril Industries and $1.75 billion in Series D funding for Saronic Technologies, which builds autonomous maritime vessels. We believe this is an area worth watching.

In the middle market, founders who have successfully run their businesses for decades are navigating extraordinary disruption - supply chain upheaval, now the challenge of building an AI strategy. For many, that’s prompting them to seek a private equity partner. These are often high-quality businesses that GPs have been watching for years. We think these situations are genuinely attractive.

Credit markets are open for business

Software-related leveraged loans traded off nearly 8% in the quarter, while the broader index was down only 1.5%⁵. But outside of software, credit markets are functioning well. CLO issuance held steady, AAA spreads tightened, and defaults - including distressed exchanges - fell to around 3.5%⁶, a meaningful decline from 2024–2025 levels. After two years of record repricing activity, Q1 saw a real pickup in new-money LBO financing. That’s a healthy signal. The bifurcation in credit is real, but it should not be mistaken for systemic fragility.

Exit multiples are also moving in the right direction. The median exit EBITDA multiple is now around 15x, up from 11–13x through much of 2022–2024 - opening the door for GPs to exit assets that had previously been stuck. Fundraising remains difficult, but 40% of LPs still plan to increase their allocations to private equity, according to a recent ILPA survey⁷. Capital is still available; LPs are simply concentrating it with managers where they see real differentiation.

In markets moving this quickly, the time we spend with the data is what keeps us ahead. We look forward to sharing more of our thinking as the year develops.

The Q2 2026 Global Private Markets Quarterly goes deeper on every trend covered here—from the rotation into hard assets and credit market dynamics, to the secondaries outlook and what LP allocation data tells us about where capital is headed next.

→ Download the Q2 2026 Global Private Markets Quarterly

^{1 Dealogic, April 6, 2026
2 Dealogic, April 10, 2026
3 Dealogic, April 10, 2026
4 Preqin, May 4, 2026
5 Pitchbook LCD, April 2026
6 Pitchbook LCD, April 2026
7 ILPA Limited Partners Sentiment Survey: 2025-2026 Edition}