At the start of 2025, the mood across private markets was cautiously hopeful, with dealmakers anticipating a meaningful rebound after two years of constrained activity. Instead, what followed was another year defined by friction. Yet the industry's response to that friction has been more adaptive than the headline numbers suggest. Secondaries activity reached record levels for the third consecutive year, capital flows shifted meaningfully toward Europe and GPs broadly moved from a defensive posture to one focused on preparation and offensive deployment. While conditions in 2026 haven't suddenly improved, the industry has adjusted its posture to succeed within conditions that, while imperfect, are workable. We recently hosted our Private Markets Club, where we explored these trends in greater detail.
Why 2025 Didn't Rebound as Expected
The roots of the current cycle trace back to mid-2022, when rising interest rates fundamentally disrupted private market dynamics. Sellers held to yesterday's valuations while buyers priced to today's realities, creating a wide and persistent bid-ask gap. The result was a sharp drop in transaction activity that cascaded into fundraising, distributions and LP confidence. Last year, the hope was that 2025 would resolve some of that tension. Instead, it revealed how entrenched the disconnect had become. A number of assumptions embedded in fund models during the low-rate era are still working their way through portfolios, and the market is still sorting out which assets are ready to transact at current prices.
Liquidity Still Drives Fundraising
Institutional investors remain broadly cash-flow negative, having deployed significantly more capital into private market funds than they have received back. Unless institutions are willing to make a deliberate strategic allocation increase, their capacity to commit to new funds remains structurally constrained. This underlying dynamic continues to suppress fundraising across most of the market, particularly for managers who lack the scale, brand or track record to compete for a limited pool of available capital.
Two notable trends have emerged from this environment. First, the secondaries market has now reached record levels for three consecutive years. What began as a mechanism to solve short-term liquidity needs has become an established and growing feature of the market, driven by continuation vehicles, LP stake sales and portfolio transfers. Second, mid-market managers are attracting growing attention from institutional allocators. As large-cap managers struggle to generate the alpha that once justified their premium, investors are increasingly looking to the mid-market for differentiated returns. Managers in this segment with strong track records and coherent strategies are finding real demand, particularly from international investors.
Europe's Resurgence in Capital Flows
For the first time in several years, Europe and the UK seems to have taken the lead over North America for dealmaking among surveyed market participants. More realistic entry multiples, less crowded deal processes and a well-developed mid-market opportunity are drawing increased interest to the region. Heightened trade policy uncertainty has accelerated a broader reallocation of capital, and Europe has emerged as a primary beneficiary. Chinese institutions in particular have significantly increased their European exposure, and a growing number of European managers are actively positioning to capture that interest. Sentiment is more pragmatic than euphoric, but it is noticeably more constructive than it has been for several years.
AI as Infrastructure, Not Hype
AI has moved from a talking point to an operational tool embedded in deal execution and portfolio management. The most immediate impact is on due diligence, with AI-enabled Q&A functionality dramatically compressing the time it takes buyers to interrogate data rooms, reducing what once took days or weeks into a matter of hours. On the fundraising side, DDQ and RFP processes are being automated at scale, improving both speed and consistency for managers engaging with prospective investors.
This isn't speculative adoption. Firms processing thousands of transactions annually are already relying on AI to maintain the throughput that would otherwise be operationally impossible. The broader implication is that AI has become embedded in value creation plans across GP portfolios as a requirement for competitive execution.
Why Readiness Beats Timing
The deals that move first out of markets like this aren't the ones backed by the most favorable macro conditions. They are the ones that are best prepared with clean data, coherent narratives and fewer execution surprises. Deal windows continue to favor sellers who have done the unglamorous work in advance, including data cleanups, sell-side readiness, refinancing optionality and well-sequenced continuation strategies. For GPs, the mindset has shifted from waiting for the perfect macro story to planning around imperfect but workable conditions. Preparation is the variable most within a manager's control, and in the current market, it may also be the variable likely to determine outcomes.
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