Where private markets may be heading next

What strikes us most about private markets right now is not the volatility. It is how investors are responding to it.

This quarter has provided no shortage of reasons for caution. Geopolitical tensions intensified. Oil prices briefly moved above $100 per barrel. Interest rate expectations reversed dramatically, with markets shifting from anticipating multiple Federal Reserve rate cuts to pricing in several hikes and a policy rate approaching 4%. And yet, capital has not retreated.

Instead, it appears investors have become more disciplined about where they deploy it. That discipline, and the divergences it is producing, is the through line of our Q3 2026 Global Private Markets Quarterly.

Where conviction is concentrating

At the headline level, the data suggests a story of strength. Global M&A reached record levels in the first half of the year, with $1.8 trillion in deal volume in the second quarter alone. IPO activity rebounded sharply, with 39 operating company IPOs raising approximately $117 billion ($86B of which from SpaceX) – the strongest quarter on record by proceeds. Private debt fundraising hit an all-time quarterly high, led by direct lending strategies that raised roughly $72 billion, more than three and a half times the prior quarter's total. These are not the numbers of a market in retreat.

But the more interesting story lies beneath those headlines.

Across private markets, capital is becoming increasingly concentrated. The ten largest M&A transactions represented more than 30% of global deal volume. The three largest buyout funds accounted for more than one-third of all capital raised during the quarter. In venture capital, AI continued to dominate investment activity, with first-half deal value already surpassing all of 2025.

This concentration is not arbitrary.

It reflects the same discipline we mentioned at the outset: investors and managers leaning into their highest-conviction ideas, into businesses where long-term demand feels more certain, and into strategies where they believe they have a genuine edge.

A reassessment of where durable value resides

One of the clearest shifts we're observing at Pacharbor Capital Group AlpInvest is the continued rotation away from software and toward what we might call the traditional economy – energy, industrial capacity, aerospace, defense, and the infrastructure needed to support AI are attracting an increasing share of private market capital.

In buyouts, these "hard" industries represented nearly half of deal volume during the first half of 2026, compared with roughly one-quarter throughout 2025.

That is a significant shift in a relatively short period of time.

Some of that reflects today's environment—higher energy prices, higher financing cost, increased defense spending, and a renewed focus on domestic industrial capacity. But we also think it reflects something more durable.

Investors are reassessing where long-term value creation is most likely to come from.
Software illustrates the other side of that story.

Earlier this year, investors worried that AI disruption might spread more broadly across technology and credit markets. So far, that hasn't happened.

Loan fund flows, which were negative during the first quarter, turned positive again in the second. Average leveraged loan spreads largely retraced their earlier widening, suggesting broader credit markets remain healthy.

The pressure has largely remained confined to software. SaaS stocks fell sharply in the first half of the year. Secondary prices for software loans have fallen from roughly 92 cents on the dollar at the beginning of the year to around 86 cents today. Software's share of new leveraged buyout financing has declined from approximately 35% last year to just 14% year to date.

That's telling, but it does not appear to be a broad repricing of credit risk. Rather, the market has become much more discriminating. For allocators, we believe that raises an important question: Are portfolios still positioned for the themes that drove returns over the past decade—or for the themes likely to define the next one?

The answer to that question will likely influence how investors allocate new dollars in the months and years ahead.

The first signals of a liquidity recovery

Liquidity appears to be one of the issues investors are most often concerned about, with frequent discussion.
Distributions were broadly flat during the quarter, interrupting what had looked like the early stages of a recovery. Buyout investors remain approximately $95 billion net out of pocket since 2022. Including venture and growth equity, the cumulative cash flow deficit approaches $260 billion.

And yet we may be watching the conditions for improvement begin to form. Exit multiples have moved meaningfully higher. Sponsors during the first half of 2026 were exiting assets at roughly 15x to 18x EBITDA, compared with around 11x to 13x through much of 2022 to 2024.

These higher valuations should make it easier for GPs to bring more assets to market and gradually improve distributions to LPs. More interesting still is a behavioral shift we're beginning to observe in our own proprietary data.

For the first time in several years, GPs appear to be accepting realized returns modestly below what they typically would have targeted in recent years – a very healthy median outcome of 2.6x, compared with the roughly 2.8x that had become the norm. That is a relatively small shift, but behavior changes before transaction volumes do. Markets reopen gradually, and this may be an early signal.

We also looked across more than 5,600 deals on the Pacharbor Capital Group AlpInvest platform to assess the integrity of current valuations. The findings were reassuring: in 2025, more than 73% of exited deals were realized at or above their prior holding value, and only 5% were exited at more than a 5% discount. The marks, in aggregate, appear fair.

Why secondaries are becoming core market infrastructure

The secondary market continues to play an important role in providing liquidity in this environment. Last year was a record year for secondary transactions, with over $200 billion in volume. Volumes in the first half of 2026 are tracking ahead of where they were last year, with GP-centered deals representing more than half of the total. And while secondaries had a strong fundraising year last year, our data suggests dry powder represents less than one year’s transaction volume at the current pace.

What we think is underappreciated is how much of the growth in secondaries reflects structural, rather than purely cyclical, forces. GPs and LPs are now far more sophisticated about the secondary tools available to them. LPs are using the market for proactive portfolio management, not simply as an exit of last resort. GPs are using continuation vehicles to retain exposure to what they perceive to be their best assets while providing liquidity options to investors. These are, we believe, durable behaviors.

As private markets continue to mature, we believe secondaries will become an increasingly important part of market infrastructure rather than simply a response to periods of constrained liquidity.

One area we’re watching particularly closely is private credit secondaries. Although still relatively small, the market is developing quickly. Transaction volume reached roughly $20 billion last year and set on a trend of potentially doubling this year with another $20 billion in the first half year alone. Yet fund turnover remains only around 1%, well below the levels we see in private equity.

Given that the private credit market now exceeds $2 trillion, we believe we're still in the early stages of that evolution.

As dedicated pools of capital continue to develop and the market becomes deeper and more efficient, credit secondaries have the potential to become a much more meaningful component of private credit investing over the coming years.

Looking ahead and what we believe this means for investors

One question comes up in almost every conversation we have with investors.

“How do you reconcile record transaction activity with subdued liquidity?”

For us, those developments are not contradictory.

They reflect a market where conviction remains strong—but concentrated. That is why we think headline activity has become a less useful indicator than the behavior sitting underneath it.

Capital is concentrating behind the ideas and businesses that investors are most confident in. That produces record headline numbers at the top of the market while also producing a more challenging environment for assets where conviction is lower, and where bid-ask spreads remain wide.

For allocators, this means the work of diversification has become harder and more important at the same time. Exposures that appeared well-balanced have in many cases become more concentrated than intended, through the simple force of certain themes outperforming. Managing that concentration actively, and thinking carefully about how to deploy the next dollar as distributions begin to improve, is one of the more consequential decisions investors can make right now.

As we always say in periods like this: the signals are there. The task is separating them from the noise.

Download the full Q3 2026 Global Private Markets Quarterly, Signal vs. Noise